PL PRIVATE LENDER The Official Magazine of AAPL September/October 2016
‣ Meet Your Hosts ‣ Speaker Lineup ‣ Highlighted Events ‣T itle Sponsor: John Warren ‣K eynote Speaker: Mark Fleming, Ph.D Presented in partnership with:
‣ Evaluating a Deal ‣ Red or Blue: Change is Ahead ‣ Knowing When to Walk Away ‣ What Awaits EB-5?
REAL ESTATE CROWDFUNDING PIONEER PG. 20
COVER YOUR ASSETS! at the American Association of Private Lenders 7th Annual Conference
AAPLANNUAL CONFERENCE 2 PRIVATE LENDER
11 aaplonline.com NOVEMBER 13-15 | CAESARS PALACE | AAPLCONFERENCE.COM
SEPTEMBER | OCTOBER 2016
Is the Deal Right for You?
by Charlie Fitzgerald
with AdaPia d’Errico
by Mark Melikian
Secrets to Success in Real Estate Investing
What Fate Awaits EB-5? Congress and the SEC Could Soon Enact Reforms
Tech Trailblazer & Innovator
The Value of ‘Other’
Change is Ahead
Real Estate + IRA + LLC = Opportunity
Regardless of Who Wins the White House
by Jean Meyer
by Melissa Lucar, Esq.
by Jeffrey N. Levin
The New Normal
Deal, or No Deal
by Michael O’Meara and Loren Picard
by Abhi Golhar
The World of Financial Engineering
Zika and its Impact on Property Valuations
Knowing When to Walk Away
Behind the Helm of Affinity Enterprise Group with Eddie Wilson
AAPL Annual Conference & Exhibition Preview
Presented in part by Lima One Capital
45 Meet Your Hosts Linda Hyde and Chrissey Breault
Get to know our featured speakers
54 Our Title Sponsor John Warren of Lima One Capital
56 Keynote Speaker Noted economist Mark Fleming, Ph.D
SEPTEMBER/OCTOBER 2016 3
PRIVATE LENDER R. MICHAEL WRENN CEO, Affinity Enterprise Group
EDDIE WILSON President, Affinity Enterprise Group
LINDA HYDE Executive Director, AAPL
LINDA WIENANDT Editor-in-Chief
HEATHER ELWING-DIXON Editorial Assistant
CHRISSEY BREAULT Director of Marketing & Member Services, AAPL
ROBERT RAKOWSKI Vice President of Media Sales firstname.lastname@example.org o. 913-599-2020 / c. 602-617-7410
EMILY BOWERS Graphic Designer
CONTRIBUTORS: Charlie Fitzgerald, Abhi Golhar, Jeffrey N. Levin, Melissa Lucar, Esq., Mark Melikian, Michael O’Meara, Jean Meyer, Loren Picard and Susan Thomas Springer.
PHOTOGRAPHY: Cover/Lender Limelight: Josh Monesson Keynote Speaker Profile: Doug Sanford Q & A with Eddie Wilson: Lynn Brennan Private Lender is published bi-monthly by the American Association of Private Lenders (AAPL). AAPL is not responsible for opinions or information presented as fact by authors or advertisers.
SUBSCRIPTIONS: Visit www.facebook.com/aaplonline or email PrivateLender@aaplonline.com. BACK ISSUES:
As the Weather Gets Chilly, Conference Planning Heats Up For many, October is a time to be with family, enjoy all things pumpkin and get cozy next to the fireplace because it is getting cold outside for most of us. But for those of us at AAPL, it is also a time of frenzied planning. We are wrapping up details for the 2016 American Association of Private Lenders Annual Conference in Las Vegas, chasing speakers, sponsors, gaining new attendees and finalizing the agenda. In this issue we are bringing you a can’t-helpourselves sneak peek at who and what you will see at this year’s conference. That includes our keynote address by First American Financial Corporation’s chief economist Dr. Mark Fleming, to another great session with Jon Hornik of LaRocca, Hornik, Rosen, Greenburg & Blaha, to advice on branding and marketing from our very own AEG President, Eddie Wilson. This issue gives you a tantalizing look at the topics, speakers and sponsors for the 2016 Annual American Association of Private Lenders Conference. So while you are sitting there drinking your pumpkin spice latte, why not start planning who you want to meet and the sessions you want to attend while you are in Vegas meeting new partners, friends and clients? See you all in Vegas!
Executive Director, AAPL
Visit www.issuu.com/aapl, email PrivateLender@aaplonline.com, or call 913-888-1250. For Article Reprints or Permission to use Private Lender content including text, photos, illustrations, logos, and video: E-mail PrivateLender@aaplonline.com or call 913-888-1250. Use of Private Lender content without the express permission of the American Association of Private Lenders is prohibited. Copyright © 2016 American Association of Private Lenders. All rights reserved. SEPTEMBER/OCTOBER 2016 5
CONTRIBUTORS MEET A FEW OF THE TALENTED INDIVIDUALS WHO HELPED BRING THIS ISSUE TO LIFE
CHARLIE FITZGERALD, MBA, is Branch Manager/Senior Account Executive for Civic Financial Services, LLC, in Las Vegas, Nevada. He has served his community for over 25 years, the last 20 of them in banking and finance representing conventional/conforming, alt-a/sub-prime, commercial and private money loan clients throughout the United States. Fitzgerald has personally originated in excess of $2 billion in loan volume and has been recognized numerous times as a Top 100 Originator in the industry. He attended San Diego State University, majoring in Political Science/Pre-law; Acton Liberty University – Business Administration (MBA); Kaplan University – Legal Studies and Policy Administration (BS) and a vast number of banking, finance, securities, legal and lending educational programs over his 20-plus-year career in the industry. Contact him at Charlie.Fitzgerald@civicfs.com or by calling 702-561-1056 or 877-47-CIVIC.
ABHI GOLHAR is the host of “Real Estate Deal Talk” and Managing Partner of Summit & Crowne. Golhar uses a “value-added” approach to invest in real estate renovation, new construction and development opportunities in the Southeast United States. He actively educates and works with investors to deploy market-driven strategies that yield success. He holds a BS degree in electrical engineering from the University of Michigan. You can find him on Twitter, Snapchat and Instagram - @AbhiGolhar. #RealEstateDealTalk
JEFFREY N. LEVIN is the founder and president of Specialty Lending Group and Pinewood Financial, which together provide a full suite of boutique private real estate lending services in the Greater Washington, D.C., area. Prior to launching SLG, between 1993 and 2007, Levin was a co-founder and CEO of iWantaLowRate.com and a co-founder and president of Monument Mortgage. Levin is a recognized authority on real estate investing and, as such, is a frequent author, lecturer and panelist. He earned a BA degree from The American University in Washington, D.C., and lives on Capitol Hill with his wife, Dunniela, a Canadian trade lawyer, and his two sons, Jack and Charlie.
MELISSA LUCAR, ESQ., is an associate in the securities and corporate department of Geraci Law Firm. Her practice focuses on helping clients raise capital via private placements, offerings and other alternative investments. She also ensures compliance with all applicable federal and state securities laws and advices clients on how to organize and structure their business. Prior to joining the Geraci team, she represented clients in a variety of tort liability cases where she handled discovery and pleadings, wrote settlement briefs, made court appearances and conducted depositions. Lucar received her BA degree from University of California, Irvine with a triple major in economics, psychology & social behavior and criminology. She graduated from the University of California, Davis School of Law in 2015.
SEPTEMBER/OCTOBER 2016 7
MEET A FEW OF THE TALENTED INDIVIDUALS WHO HELPED BRING THIS ISSUE TO LIFE
MARK MELIKIAN is Chief Valuation Officer for Summit Valuations, where he oversees the performance and training of the quality assurance team, product development, and is the company’s valuation expert. He can be reached at email@example.com.
MIKE O’MEARA is a senior level executive who has more than 30 years’ experience in commercial/residential real estate lending, investments and credit/risk management. He is currently executive director of G5, Inc., where he is developing a small-mid balance CRE lending platform focused on an efficient customer acquisition model and innovative financial instrument and vehicle structuring for delivery to the private and institutional investment community. O’Meara was appointed Chief Credit Officer of Capmark Investments LP (formerly GMAC Institutional Advisors) for all debt investments with additional responsibilities as an executive committee member for domestic and international real estate debt and equity investments. He also directed the credit and underwriting administration, asset management and loan surveillance activities for an $8 billion portfolio of real estate debt investments. He can be reached at firstname.lastname@example.org or https://www.linkedin.com/in/momeara.
JEAN MEYER is president of Mainstar Trust, formerly First Trust Company of Onaga. Mainstar is a self-directed IRA custodian of over 100,000 accounts with more than $8 billion under custody.
LOREN PICARD was a managing director with Redwood Trust for nine years and a vice president with The Money Store/First Union Bank. In 1988 Picard started a mortgage banking firm, in 1991 he started a NASD broker-dealer specializing in institutional mortgage sales, and while at RWT he sat on the Investment Committee which oversaw the investment in securities backed by tens of billions in residential mortgages and managed an investment team of 15 professionals responsible for $1 billion in commercial real estate loans/securities. While at The Money Store he over saw 70 employees originating and securitizing loans on a national basis. Picard recently completed three years as a board member of a San Francisco-based mortgage bank funding over $2 billion annually in residential loans. He can be reached at email@example.com or https://www.linkedin.com/in/lorenpicard.
8 PRIVATE LENDER
SEPTEMBER/OCTOBER 2016 9
WHAT’S CURRENT TRENDING INDUSTRY TOPICS
COLONY AMERICAN FINANCE REACHES $2 BILLION IN LOAN ORIGINATIONS Colony American Finance, a leading provider of financing solutions for residential real estate investors, has surpassed $2 billion in loan originations. “We are pleased to have reached this milestone in just over two years,” said CEO Beth O’Brien. “Our rapid growth underscores the demand for access to acquisition capital and long-term financing among non-institutional investors in single-family homes. This has proven to be an exciting product and sector, and we look forward to continued growth in the coming years.” Colony American Finance, founded in 2014, is a specialty finance company that provides a range of debt products to residential real estate investors. The company offers portfolio and single asset term loans for stabilized rental properties as well as short term credit lines for acquisitions and has issued loans across most major metropolitan areas in 43 states. The company specializes in loans to small and mid-size investors in the market, with an average loan size of just over $3 million.
PEOPLE IN THE NEWS
• Charles Sells (The PIP Group) Master Investor of the Year • Brew Johson and Brett Crosby (PeerStreet) Innovator of the Year/Lending The annual awards, presented by Think Realty Magazine, recognize businesses and individuals for their support of the real estate investing industry through adherence to high standards, collaboration and long-range vision. Serena Yang, Director of Marketing for Civic Financial Services, is featured in the MReport’s September 2016 special issue celebrating the accomplishments of women in the mortgage industry. The magazine highlights its “Power Players,” “Leading Ladies” and “Emerging Leaders. Yang was named one of the “Leading Ladies” for the industry sector. Winners were nominated by their peers, who cited all the qualities that make them strong leaders—such as their intelligence, drive and pursuit of innovation. See the complete list of winners here.
The American Association of Private Lenders
Civic Financial Services is currently seeking an
congratulates its members
Account Executive Manager, with responsibility first for
who were honored recently
building a book of business. Eventually, this person will be
as winners of the 2016 Think Realty Awards of Distinction:
tasked with hiring Account Executives and ensuring the resulting team meets specific loan production goals through
•B loomfield Capital (Brent Truscott)
the establishment of ongoing business relationships with
Private Lender of the Year/Commercial
mortgage brokers, real estate agents and investors located
• IRA Services Trust Company (Michael McNair) Self-Directed IRA Custodian of the Year • NoteSchool (Eddie Speed) Alternative-Asset Investor of the Year • RCN Capital (Jeffrey Tesch) Private Lender of the Year/Residential
10 PRIVATE LENDER
within an assigned territory. Civic also is recruiting for the Account Executive position. That position is responsible for meeting specific loan production goals through the establishment of ongoing business relationships with mortgage brokers, real estate agents and investors located within the assigned territory.
Civic is a private money lending group specializing in the financing of residential investment properties. Civic
billion, marking a milestone for the startup. Since launching its full operation in February 2015,
provides mortgage brokers, investors and real estate agents
ShareStates has originated over $150 million in loans
with a mortgage lending solution for investment property
across more than 210 projects, with an average loan size
acquisition and refinance transactions in various states.
of approximately $728,000. To date, Sharestates has
Positions are available nationwide; for information, email
returned over $50 million to investors with an average
return rate of 11.36 percent for 2016, with zero loss of principal. Sharestates’ current trajectory has it on a
True North, an investment advisory firm, is recruiting for an Investment Adviser position based in Kuwait. The company partners with high-net-worth Individuals (HNIs) to educate, build and grow sustainable investments in mortgages and mortgage funds in the United States and the UK. Duties and
$25 million to $30 million month-to-month origination volume, leading it to break over $200 million in originations by year’s end. “The process to onboard these funds was extremely difficult – requiring multiple site visits, third-party reports and vetting
responsibilities of the Investment Adviser
of our entire operational process from
position include generating, building and
application to post closing practices,”
fostering meaningful client relationships;
said Allen Shayanfekr, Sharestates’ co-
meeting prospects and converting them
founder and CEO. “Our team received
into business; planning customer visits
great scores on each of the various
and preparing necessary reports; using
aspects of the audits, enabling us to
social media to increase audience engagement for the company’s website; and establishing a continuing marketing approach to increase the customer
continue to grow our platform and brand.” This new round of financing comes a few months after Sharestates received $300 million in
base. Required skills include: public speaking, effective
loan purchase commitments, driven by collaborations
communication, interpersonal relationships, managing
with Prime Meridian Capital Management and Colony
multiple priorities, prospecting, customer retention,
customer experience management and computer skills. If
Citing other crowdfunding sites including Lending
interested, contact True North at +965 66197372 or email
Home, Patch of Land, FundRise, Realty Shares and
Realty Mogul, Shayanfekr said, “Together we are all
SHARESTATES HITS $1.3 BILLION MARK IN FUNDING CAPACITY New York-based Sharestates, one of the nation’s
pioneers of this incredible financial movement known as ‘crowdfunding,’ collectively striving to bring Wall Street investments to Main Street investors.” For more information, visit sharestates.com.
PROCIDA CROSSES $30 MILLION MILESTONE
leading online real estate crowdfunding platforms, announced it has surpassed $1 billion in committed capital
Procida Funding’s 100 Mile Fund recently cleared
for the purchase of loans. The newest capital infusion
the $350 million threshold of lending originations since the
comes from a fund that collectively manages more than $15
fund’s beginning in 2011. The milestone is important for
SEPTEMBER/OCTOBER 2016 11
TRENDING INDUSTRY TOPICS the fund, which has seen rapid growth and high dividends
find out about Civic’s broker referral program. Set up a
for investors over the past five years under the leadership of
meeting by contacting firstname.lastname@example.org.
President and CEO William Procida. The fund has delivered a 14 percent average return to investors. “We do not chase trends—we focus on developers of low-risk projects in sub-markets like Nyack, New York, or Beacon New Jersey,” Procida said. “Many lenders do not understand that the price basis and stability in those markets reduces risk.”
Civic Financial Services, based in Redondo Beach, California, is also opening a new office in Irvine, California. Contact email@example.com to get an invitation to the office opening celebration.
BLOOMFIELD CLOSES $2.7 MILLION SENIOR BRIDGE LOAN
The 100 Mile Fund is a middle-market real estate investment vehicle focused on development and bridge loans. The fund exclusively loans to borrowers and projects within 100 miles of the fund’s offices next to the George Washington Bridge—hence the name “100 Mile Fund.”
Bloomfield Capital, a national direct lender and specialty real estate finance firm, has announced the closing of a $2.7 million senior bridge loan. The loan proceeds were used to acquire and renovate an
The fund’s typical borrower refinances
industrial distribution property in
with conventional long-term debt an
average of 14 months after receiving a
“Bloomfield’s funds will allow the
loan from Procida. The fast pace and
sponsor to acquire and redevelop a well-
quick turnover of the fund’s business
located warehouse/distribution asset in a
creates an exceptional velocity that has
submarket with limited supply and strong demand drivers,” Jason Jarjosa, a principal at
consistently rewarded investors. Procida Funding, LLC provides bridge, mezzanine, and equity capital to the real estate and industry and middle
Bloomfield Capital, said. “There continues to be a lack of affordable distribution and
market companies. Since 1995, the firm has completed over
warehouse space in the Midwest and the South. This project
$2 billion of transactions in the $1 million to $50 million
involves the conversion of a large single-tenant building into
range, utilizing its own capital as well as strategic capital
productive multi-tenant space. Bloomfield’s borrowers have
partners. Procida Advisors provides due diligence and
come to appreciate our ability to see the value in renovating
asset management services to financial institutions and
existing warehouse and distribution assets to serve the need of
private equity funds with a concentration in construction,
small and medium sized tenants,” Jarjosa continued.
bankruptcy, restructuring and marketing.
CIVIC FINANCIAL EXPANDS FOOTPRINT Civic Financial Services now lends in the state of Nevada. Representatives of the company will be at the AAPL Annual Convention in Las Vegas Nov. 13-15, 2016, and invites interested parties to meet with them to
12 PRIVATE LENDER
Bloomfield has closed loans on over 2 million square feet of industrial and distribution space during the first eight months of 2016. •
submit your news
Send us your news, updates, or job opportunities for possible inclusion in our next issue! Submit details to PrivateLender@aaplonline.com
SEPTEMBER/OCTOBER 2016 13
Is the Deal Right for You? by Charlie Fitzgerald
ne of the secrets to success
professionals who advise you to do
makes sense for you if it is based on
in the real estate investing
this exercise—thoroughly, and prior
your needs, desires, plans, financial
arena is so secret it hardly ever
to making an investment in real
situation, etc. It should never make
gets mentioned. Seasoned industry
estate—also will readily admit that
sense to you because someone else
professionals believe it’s the very
there are a whole bunch of other folks
tells you it should make sense to you.
first aspect of becoming a successful
(some of whom claim to be industry
real estate investor that anyone
professionals) who will tell you that
fundamentals of your perfect real
doing this is a giant waste of time and
estate deal, you’ll want to identify
energy and that real estate investing
and work with the lender that has
professionals is talking about
is about “getting out there and getting
turned down more deals that it could
“building your team” or “lining up
it done!” They will tell you that there
have—and actually has—funded.
your money” or attending any “guru”
are so many deals to be had, that
Why? Because if that lender is turning
training seminars. Frankly, they’re
“nobody can lose.” Some of these folks
down deals that may be good for it as
talking about establishing your
will teach you, mentor you, train you,
a lender but are not good deals for its
personal investing fundamentals.
coach you, guide you and sell you
borrower-prospect, it is likely that this
everything you need to know (in their
lender does care about your success
opinion) to make it happen and make
and is watching out for you.
None of these seasoned
Let’s be really clear on this: The goal here is to encourage you, as a new investor in real estate (or a
it happen quickly!
Once you establish the
A responsible lending partner is
seasoned investor who has
The problem is that
one who will only loan you money
yet to do so), to define a
even those few people
if it is confident that the deal, as
who are credible
structured, will deliver you the
very detailed picture of the perfect
and have your
at heart are not
that works for
working with your
you. That’s the deal
you are going to do,
mind. They are
10 times out of 10,
telling you what, in
without blinking an eye, when you come across it. It’s the
their opinion—right, wrong or indifferent—you need
revenue to: • Pay the lender back within the loan term offered, and • Provide you some level of reasonable profitability. Avoid any other lenders that don’t care whether you pay them back,
deal to which you will never say “No”
to do based on their fundamentals
because they will simply foreclose on
because it hits all the check-the-box
(or worse, a whole bunch of pieces
your asset and leave you with nothing.
items on your “My Investment Real
of a whole bunch of other people’s
There are more of these types in the
Estate Fundamentals Checklist.”
“keys to real estate success”).
private money space than you know.
Now, the same industry
14 PRIVATE LENDER
At the end of the day, a deal only
Be careful. •
MOST INTERESTING MAN in
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PITBULLâ€™S 41st NATIONAL
HARD MONEY CONFERENCE Monday October 24, 2016
Harbor Beach Marriott
A one day event for...
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www.pitbullconference.com SEPTEMBER/OCTOBER 2016 15
What Fate Awaits EB-5? Congress and the SEC soon could enact reforms to the rapidly growing foreign-investment/visa program. by Melissa Lucar, Esq.
ossible changes ahead for the
increasing popularity of EB-5 as a
are still no protections for investors if
EB-5 visa program were the
means of alternate project financing
USCIS terminates a regional center that
focus of a June 16, 2016, conference
have provided Congress and the
is being investigated. He went on to
at Baruch College. The discussion
Securities and Exchange Commission
explain that one of the risks investors
focused on multimillion-dollar fraud
(SEC) with a strong incentive for
face is that whenever a regional center
cases and potential reforms and
reform. For instance, the panelists
closes, the investor loses his or her place
possible amendments to the program,
discussed the potential changes
in line for the visa. With the current
which may occur on Sept. 30, 2016.
to the EB-5 program, including
backlog of visas, this is a situation not
changes in the investor’s minimum
many investors want to risk.
As explained by Nicholas Colucci, chief of the Office of the Immigrant
capital investment requirement
Investor Program, U.S. Citizenship
and requirements for targeted
involved in tracing an investor’s
and Immigration Services, appearing
source funds. This is especially
before the Senate Judiciary
Similarly, Ira Kurzban and Nima
Also discussed was the difficulty
true for investors who come from
Committee earlier this year: Congress
Korpivaara of David Hirson &
countries that have shadow banking,
created the EB-5 visa program in
Partners, LLP, addressed the legal
which makes it difficult for corporate
1990 to stimulate the U.S. economy
and procedural questions related to
attorneys to track bank transactions.
by encouraging foreign capital
EB-5 projects, including securing
investments and job creation. The
project funds and other sources
consensus seemed to suggest that
EB-5 program makes immigrant
of capital. Kurzban mentioned
any legislative reforms taken should
visas and subsequent “green cards”
that there was a current regional
be aimed toward alleviating some
available to foreign nationals who
center investigation that would
of these problems and increasing
invest at least $1 million in a new
soon go public that could greatly
investor protection and confidence
commercial enterprise that will create
affect the EB-5 community. Such
in the EB-5 visa program. The
or preserve at least 10 full-time jobs
investigations demonstrate the
panelists unanimously agreed that
in the United States.
seriousness of SEC enforcement
there needs to be an increase in EB-5
EB-5 has continuously increased
actions and the agency’s desire
visas, especially provided that only
since 2008. Prior to 2008, investment
to protect investors. This is also
1 percent of all visas issued annually
revenue raised through the program
demonstrated by the Immigrant
are to EB-5 applicants. However, it
was close to $1 billion. That number has
Investor Program’s oversight by
was cautioned that reapportionment
increased to over $14 billion since 2008.
Colucci, who has experience in
of visas by country may be necessary,
finance and investigating fraud.
considering Chinese applicants
Many recent high-profile fraud cases (including an investigation into Jay Peak Resort) and the
16 PRIVATE LENDER
In addition, of particular importance was Kurzban’s statement that there
By the end of the discussion, the
are allocated 8,000 of the 22,000 available visas. •
SEPTEMBER/OCTOBER 2016 17
The New Normal by Michael O’Meara and Loren Picard
elcome to the world of
(website lenders are generally
In this approach you take the cash
financial engineering. Allow
referred to as marketplace lenders).
flows coming from the asset and
us to introduce you to the power and
In this world where investors are
direct them to different investors at
simplicity of some basic financial
searching for yield—and not just any
different times. Investors who get
engineering techniques that will
yield, but yield with a risk level they
most of the cash flows earlier generally
expand your business opportunities,
understand—FE can be a market
get less of the interest generated by
allow you to entertain new lending
differentiator and give you and your
the underlying asset and suffer fewer
strategies and help you understand
firm a competitive advantage. If you
losses if there is a default. Investors
that when Wall Street does financial
have the ability to accurately design
who get more of the cash flows at a
engineering (referred to hereafter
different return scenarios across risk
later date typically get a higher interest
as FE), it is what we lay out in this
and return profiles that incorporate
rate than the previous investors,
piece, but with less transparency to
the most sensitive variables to
but in exchange they must suffer
the average investor.
return, you will be way ahead of the
more—if not all—of the losses sooner
average lender who says, “We offer
and definitely prior to the previous
is also about allocating risk. It is also
our investors an 8% return.” Without
investor. This structure is a simple
about risk mitigation.
context and details, investors have no
At its core, FE is about leverage. It
When you own a cash-flowing
idea what the assumptions built into
asset, whether a loan or property, you
that 8% return represent (a lot of the
can leverage that asset with borrowed
time there are no assumptions built
money. Assuming the cost of the
into the return quoted).
loan you are using for leverage has a
Let us look specifically at
Structuring a $3 million loan, the basic idea is:
$3 MILLION First Meeting
lower interest cost than the net cash
leveraging debt secured by real estate.
flow (sans principal) coming from the
You can leverage it in two ways. The
asset, then you should expect a higher
first is to put the secured debt up as
return, all things equal, compared
collateral and borrow against it. This
to not leveraging the asset. This is a
is called financial leverage. This is
very popular use for leveraging an
very common and doesn’t take much
can be created between these two
asset, but usually entails much more
to understand other than you must
extremes. Also, the cash flow rules
risk than necessary and in a lot of
read the leverage/loan agreement
are a further layer of complication
cases requires a personal or corporate
very carefully in order to know all the
and can be structured differently
guarantee on top of the loan being
ins and outs of when the leverage is
from deal to deal.
provided as collateral.
due and payable, cure rights, reps and
The relevance to private lenders and lenders operating with a sophisticated website is apparent
18 PRIVATE LENDER
warranties, etc. Another way to leverage the debt asset is called structural leverage.
$2.7 MILLION Senior
There are many variations that
FE allows for much more complicated structures than a simple senior/subordinate structure. If you ever get the chance take a look at a
••• prospectus from a securitized mortgage
some exemption, the rules governing
their business around the risk sharing
deal; there can be up to a dozen or more
institutions will eventually trickle
concept will have a competitive
tranches, which are referred to as classes
through to sophisticated investors
advantage over firms that just buy
(a senior/subordinate structure has
in that their expectations will be
and sell notes. Not only can you make
two tranches). In addition the cash flow
raised. For example, the commercial
your investor customers happy, you
rules of who gets what and when can be
real estate bond market will soon be
can also start to create another prized
as complicated as a physics calculation
required to take on risk sharing (risk
outcome of FE—being classified
(just a little bit of an exaggeration).
retention) as part of sponsoring the
as an asset manager as well as a
issuance of bonds (CMBS). This is
fund sponsor. You will be creating
includes classes that only pay
euphemistically known as “skin in
enterprise value for your business
the investor interest or only pay
the game.” If you haven’t already,
beyond the yields your investments
principal, or only pay out a reserve
take a look at the various ways CMBS
generate. The market opportunity is
fund if the credit performance of
sponsors can do risk retention. The
huge, and there are unlimited ways to
the pool is better than expected.
point being that FE allows you to have
slice and dice the market. Firms will
All these tranches/classes have an
skin in the game while getting paid
exploit the opportunity to the level
economic value. FE is the epitome of
for it and at the same time returning a
of their ethical and business practice
“the sum of the parts is worth more
well-structured yield to your investors.
and FE acumen.
The more complicated deals
We have attempted to make this piece more of an intro piece (notice the lack of math calculations or even
Credit Tranching AAA
complex charts) in order to showcase
our enthusiasm for the opportunity awaiting the market. Inasmuch as we support the current crop of online
AA A BBB BB B Unrated
lenders, we feel that as of yet no one has fully capitalized on the formula of risk alignment (or sharing) with their investors—a simple but powerful structure that will truly be
a game changer in the marketplace lending world. Perhaps in future articles we can drill down further. We in no way
than the whole.” As most readers are aware,
In fact, we believe the risk
have all the answers, but given our
retention rules are a great
current understanding of the market,
the rules have been changing for
opportunity to come to private and
the members of the AAPL should be
institutional lenders for the last few
internet-based lenders. The market
a thriving and growing community
years (thank you, Dodd-Frank) and by
opportunity to show that you eat
with some of the firms creating a
implication the rules will change for
your own dog food will be huge in
regional, if not national, presence.
everyone involved in lending. Even if
the coming years. We also believe the
Feel free to reach out to us with any
you are not impacted directly due to
firms that structure a large part of
specific questions. •
SEPTEMBER/OCTOBER 2016 19
20 PRIVATE LENDER
AdaPia d’Errico relishes front-row seat to crowdfunding’s emergence as a fundraising option.
company for nearly three years,
country who had never before had
from a challenge. Throughout her
having joined the founders a few
access to these kinds of opportunities.
career she has seized opportunities
months after their public launch in
After all, real estate is the foundation of
to learn as much as she can, grow
October 2013. At that time there were
wealth across the world.
her varied skill set and help others
three founders (plus me), no office
along the path to success. We asked
and a moonshot vision to be a leading
conferences in San Diego in January
her to share some of the details of
player in providing both access to
2014 and met several of the early
the journey that has brought her to
capital and access to deal flow to a
companies, including Patch of Land.
crowdfunding pioneer Patch of Land,
marketplace of investors transacting
where she is Chief Marketing Officer—
in real estate debt.
daPia d’Errico doesn’t shy away
and the company’s employee No. 1. PRIVATE LENDER
had a front-row seat to watch the
All I can say is, “We pulled it
After meeting the founders and hearing their story and their vision— which had a strong social impact and
off!” As CMO, my role was a mix of
community component—I felt that the
marketing, communications, public
opportunity Patch of Land in such an
relations and evangelism.
early stage (three months after launch)
growth and progress of Patch of Land
was one I could not pass up, so I joined
as well as the crowdfunding industry.
PL: How did you get your start in
That’s got to be exciting for you!
I went to one of the first RECF
them as their CMO, and employee #1. This was also my initial experience in
AD: I first heard about securities
the world of real estate—professionally.
crowdfunding and the JOBS Act as
I own some rental properties but I had
a start-up to early stage company in
it was coming into effect in 2012. At
never previously been involved in the
just a few months, growing the team,
the time I was working with clients
real estate industry to this degree.
growing sales, raising a series A and
on crowdfunding campaigns through
basically just growing everything—all
either Kickstarter or Indiegogo.
the time—has been an incredible and
As things picked up steam in 2013,
PL: Describe the path you took to get from that beginning point to where
I began hearing about real estate
you are now.
crowdfunding. I immediately got
AD: The path is best described as a
real estate crowdfunding companies
excited, as I instinctively knew that
plunge into deep waters, where you’re
to emerge after the JOBS Act passed
access to real estate investing would
forced to swim and never stop. It’s
in 2012. And I have been with the
resonate with investors across the
been a never-ending cycle of learning—
challenging experience. Patch of Land is one of the first
SEPTEMBER/OCTOBER 2016 21
LENDER LIMELIGHT whether that learning has come in the
abundance of opportunities out there—
most interesting, or professionally
form of conferences, meeting people,
can in fact be shared not just by direct
listening to podcasts, reading blogs,
borrowers or investors, but also by
AD: The experience of starting my
participating on forums or interacting
own companies before Patch of Land
with clients at Patch of Land.
was extremely fulfilling because it PL: What challenges or opportunities
taught me that I was capable of taking
never an expert—so I approach
do you see as the industry continues
a risk on myself and, no matter the
everything I do with an open mind and
outcome, of succeeding.
a willingness to learn. Then I apply
AD: The private lending industry
those learnings in the form of dynamic
has an opportunity to work with,
as I did, and building it to what it
growth strategies that are constantly
adopt or partner with technology and
has become, has been my greatest
being iterated, tested and refined.
technology-driven companies. Just as
professional accomplishment to
fintech companies are forcing the banks
date. I plan on doing more great
PL: What types of things do you do to
to adopt better technology in order to
things, and I’m hooked on growing
be competitive, I believe that private
companies and industries.
AD: I am constantly reading, watching,
lenders can use technology to improve
listening and meeting people. I attend
their business and their bottom line.
I consider myself a lifelong learner—
Getting to Patch of Land as early
PL: Is there one lesson you’ve learned
conferences; read trade publications,
There is so much opportunity in the
along the way that stands out for
blogs and forums; and I keep up with
space—so many deals to be done—that
you? What was it and what did it
a lot of economic news as well as
only technology can help to achieve
financial markets and real estate news.
a level of efficiency that can help to
AD: I learned one of the most
Living in LA with a commute has given
harness more of those opportunities.
important lessons of my life while
me the opportunity to listen to many
The challenge there is to understand
starting my own businesses and
podcasts and audiobook,s as well.
which technology is good, which
working in a start-up: that there is no
companies are worth working with, and
such thing as failure.
PL: What do you find most
what’s right for each company.
challenging about your work,
That word should be struck from the dictionary and from our language!
especially as it applies to the private
PL: What is your business philosophy?
I refer to it as feedback, because
AD: My business philosophy is
no matter what I did and what the
AD: The whole concept of real estate
rooted in my global experience and
end result, I learned something
crowdfunding is to provide access
passion toward building mutually
and it added to “me:” my skills, my
to capital and to deal-flow, and
beneficial relationships. I believe in
knowledge, my abilities and my overall
what has been most challenging and
giving back, being generous with my
rewarding is seeing the results—seeing
time and my connections.
that technology, and the efficiency it
PL: How do you maintain your
brings, can be applied to the private
PL: You have been involved in many
passion for your work?
lending industry, which doesn’t rely on
different aspects of business—from
AD: I’m always passionate about
technology at all.
banking and finance to marketing and
building mutually beneficial
communications, brand development
relationships, and I feel that I can
model and the new model together,
and entrepreneurship, among
always achieve that no matter what
so that the promise of access—and the
others. What have you found the
I’m doing. I love meeting people,
The challenge is bringing the existing
22 PRIVATE LENDER
LEARNED ONE OF THE MOST “ IIMPORTANT LESSONS OF MY LIFE WHILE STARTING MY OWN BUSINESSES AND WORKING IN A START-UP: THAT THERE IS NO SUCH THING AS FAILURE.
connecting people and doing business
and participating. I wasn’t planning on
in a fun, profitable and honest way.
being in this business, but that’s where
In an industry like private lending, it’s all about building relationships,
I ended up, and I love it. Like most careers or industries
vertically is what it’s all about. PL: What has been the secret, or key, to your own success?
building trust and helping each
nowadays, this is one that isn’t front-
AD: I gain in spades from being
other succeed. This is also why AAPL
and-center on a career job board! But
focused on making others successful.
resonated with me; I could get behind
it’s very rewarding, and I think a lot of
I feel successful when I have strong
the belief and promotion of strong ethics
women can be very successful here.
relationships and can count on
and relationships in this industry.
My advice to anyone—woman or
people in my life to support me, also.
man—is to not overthink anything.
I’m really blessed and grateful for all
PL: Traditionally, the private lending
For better or worse, I get into things
the people who believe in me, and
business—like most—has been
without thinking through a 10-page list
push me to excel, also.
dominated by men. Do you see that
of pros and cons.
changing? What advice do you have
I like to learn as I go, and the world
PL: What three characteristics do you
for other women who aspire to do
today allows you to do just that—
think are most important to someone
what you do?
especially for the younger generation
in your business?
AD: The real estate and finance
who can’t imagine having one job, one
AD: Three important characteristics are
industries are very much still
defined career with a path dictated by
passion, optimism and tenacity. When
dominated by men, but it’s changing
a corporate hierarchy. Learning on the
building a business you need a ton more,
because more women are stepping in
job and taking those skills laterally and
but these three are fundamental to
SEPTEMBER/OCTOBER 2016 23
making it through the tough times, which
to read and write, and ask questions
AD: It isn’t exactly relaxing, but
are really only little speed bumps on the
and learn; I took all that within and
I need a lot of power yoga in my
superhighway that you’re riding on.
have lived that way my entire life. He
life, and I’ve been practicing for
imparted in me a sense of adventure, of
five years now. I have a morning
wanting to see and experience the world.
meditation practice that helps me
PL: What’s the best advice you’ve ever received? From whom?
He was a tech nerd in his own way
on a daily basis, and I can’t live
AD: It’s from Richard Branson, though
as I still remember how excited he was
not given in person. I read this in his
to buy a phone/fax and I helped him
first autobiography, which was very
get it set up. I wish he had been around
ocean here in LA, so I’ll go there to
influential in my formative, early
for the rise of the Internet because he
relax and walk in Manhattan Beach.
twenties. The advice is his motto:
would have been a super early user.
When I really want to disconnect, I’ll
“Screw it; let’s do it!”
He also helped me develop
without it. I’m fortunate to live close to the
binge-watch something on Netflix.
confidence, and taught me to be PL: What person has been the most
humble yet also proud of who I am,
PL: If you could be anywhere in the
influential in your life, and how?
where I’m from and to stand firm in my
world right now, where would you be
AD: My grandfather. He loved to
values and beliefs.
and what would you be doing?
travel, and he let me be as curious and explorative as I could be. He loved
AD: I’d be sailing somewhere in the PL: What do you do to relax?
Mediterranean Sea. •
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The Value of ‘Other’ Real Estate + IRA + LLC = Opportunity by Jean Meyer
RA and LLC have three letters each,
ideally will augment traditional IRA
but when investors add real estate to
returns generated by mutual funds and
the mix, a useful tool emerges: Investors are given an opportunity to build taxdeferred savings in a non-traditional manner. By utilizing a self-directed IRA strategy, the investor is able to extend
individual securities. Here is a partial non-traditional asset menu: • Commercial and residential real estate
Extending the Investment Lineup Click on a financial planning web page or pick up a periodical discussing investment strategies and the word “diversification” will be splashed all over. Frequently an accompanying pie chart allocates a slice, labeling it “other.”
his or her available investment lineup
• Raw land
Even the Securities and Exchange
to include real estate and several other
• Private placements
Commission (SEC), in its publication
alternative, non-correlated options.
• Private notes
“Beginner’s Guide to Asset Allocation,
• Limited liability companies and
Diversification and Rebalancing,”
The performance of these asset classes does not move at the same time and manner as traditional securities and mutual funds. Non-traditional assets, though certainly not guaranteed,
26 PRIVATE LENDER
limited partnerships • Real estate investment trusts and business development companies • Precious metals
acknowledges “other,” stating: “A diversified portfolio should be diversified at two levels: between asset categories and within asset
••• categories. So in addition to
below), thereby increasing investable
allocating your investments among
dollars. Alternatively, other investors
stocks, bonds, cash equivalents
use debit financing to increase
and possibly other asset categories,
purchasing power rather than owning
you’ll also need to spread out your
the LLC in partnership with others.
investments within each asset
real estate investments at the
investments in segments of each
same time even if not purchased
asset category that may perform
simultaneously. Having an LLC
differently under different market
gives the investor the ability to add
properties and “close the deal” on
his/her schedule without involving
by the SEC includes real estate.
the IRA custodian. The LLC can manage any cash
Owning real estate also can address
transactions relating to the property,
the diversification within categories
such as rent collection and payment
strategy, allowing an investor to
of utility bills.
own rental properties generating
4 The custodian is instructed to
invest the IRA money into the newly formed LLC.
The LLC can own several different
category. The key is to identify
The “other” category mentioned
prohibited transactions rules.
5 The LLC invests in real estate on the investor’s schedule with no custodian involvement.
6 The LLC receives the periodic
income or realized gains upon sale, and those funds flow directly to the self-directed IRA account.
7 The investor is ready to make the next purchase!
Since the LLC will make annual What do investors need to know?
cash flow or, alternatively, owning
government filings, ready-made
land purchased with an eye toward
activity summaries will be available
in the unlikely event of a government
be paid as the LLC’s manager, and
neither can his/her spouse, parents,
Many investors use
their IRAs to purchase real estate
grandparents or children, as they are
directly (meaning the IRA holds title to the real estate), but another option is for the IRA to purchase
We noted the investor cannot
How does using an LLC work?
1 I nvestors open a self-directed IRA
considered “disqualified persons” under IRC §4975. Nor can disqualified
an interest in an LLC, which then
and fund it by making current
persons be paid to perform any repairs
invests in real estate (meaning the
contributions, transferring assets
or maintenance on a rental property.
LLC holds title to the real estate).
from another IRA or rolling over retirement assets.
Why use an LLC? An LLC offers, as the name
2 T he investor and his/her
Ignoring this restriction may generate what is called under IRC §4975 a “Prohibited Transaction”. The rules are designed to eliminate self-
“limited liability” implies, some
professional adviser (attorney or
dealing, and stiff penalties are applied
protection in the event litigation
CPA) create an LLC and register
arises, but investors should check
it in the state where the LLC will
with an attorney to determine
the extent this potential added protection is available.
3 T he LLC agreement names a
Investors should also understand that using debt to increase purchasing power (investment leverage) can have a negative impact
manager. Note: if the investor
on what otherwise is a tax-deferred
LLC’s sole investor, so having an LLC
is the named manager, he or
investment. It is not prohibited, but
allows the LLC manager to invite
she cannot be paid, because
does subject income and growth
others to invest (subject to restrictions
such payment would trigger the
attributable to the investment’s debt
The IRA does not need to be the
SEPTEMBER/OCTOBER 2016 27
BUSINESS STRATEGY/FINANCE portion to current taxation under IRC §514. The expected return this strategy presents may remain appealing despite potential current taxation, but all who utilize this strategy are advised to review its implications with a tax adviser or attorney before proceeding. Keep in mind that non-traditional assets, such as real estate, are not traded on exchanges and investments and may take time to sell when immediate liquidity is needed. Self-
1 Experience. How long has the
custodian been serving investors
charge fees based on a percentage
utilizing self-directed IRAs?
(basis point charges) of the
Custodial organizations who
assets under their care. This
exhibit “staying power” have
compensation arrangement has
demonstrated the ability to meet
the custodian’s fees increasing
client demands year after year.
as the investor’s account value increases, but not with increased
2 Service. Is the custodian’s
services. Other custodians’ fees are
customer service model
based on the services provided per
account and do not increase as the
• Many investors prefer personalized, “real people” access via the telephone
featuring minimal hold times
like all IRAs,
and also want interactions with
account’s assets be held by a custodian. Whether the investor chooses the LLC strategy or not, the custodian must be there to serve the investor’s needs— not the custodian’s. What is the IRA Custodian’s role? Not every custodial organization offers a self-directed IRA option. After you know whether or not the selfdirected IRA option is available, you may be tempted to treat the custodial selection as you would a commodity and make the utilization decision solely on price. While fees are important, the decision as to which custodian to select
• Does the custodian accommodate tech-savvy
So what criteria should an
investor’s IRA grows.
5 Transactional Fees. Investors who intend to engage in frequent transactions should choose a custodian with reasonable transactional fees. These fees can vary significantly from custodian to custodian.
investors? Some investors prefer communicating electronically and expect
Concluding Thoughts Non-traditional investments,
a prompt response even
particularly real estate, provide well-
if it is only an initial
informed investors the opportunity
to diversify their portfolios, both
communication was received.
among and within asset classes.
• Are the forms “investorfriendly” with clear completion instructions? • Is the custodian’s web portal simply “there,” or does it offer investors helpful tools designed to address their concerns?
involves much more than dollars. It also has to make sense.
4 Annual Fees. Many custodians
Wrapping the real estate strategy within a self-directed IRA has added benefits providing the investor a tax-deferred depository enabling cash flow reinvestment at 100 cents on the dollar because IRA earnings are tax-deferred. Real estate appreciation (not guaranteed) also flows tax-deferred into the IRA when the investment is sold. Adding
3 Flexibility. Are the non-
a complementary LLC introduces
traditional investments the
potential liability protection,
investor utilize to help select a
custodian handles diverse enough
purchase timing nimbleness and the
to provide investor flexibility?
ability to expand the investor pool. •
28 PRIVATE LENDER
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Deal, or No Deal
potential properties. At times, the cover-ups and
Knowing when to walk away from a deal is absolutely essential to success in real estate investing.
cost-cutting projects might be so masterfully done that no signs are detectable during the inspection. However, human nature is imperfect,
by Abhi Golhar
and the potential stress resulting from attempting to cheat someone
n the world of investing—whether
opening cabinets; or looking under the
in a deal can easily cause behavioral
it’s stocks, bonds, real estate or any
sinks might seem rude or unethical
outbursts that are easy to notice. For
other type of investment—knowing
to some, but they are a necessary
example, signs of anxious behavior
when to close a deal is essential to
component of a proper inspection.
and impatience to sell the property are
clear indicators that the seller could
success. Equally important for a successful investor is knowing when to walk away from a deal. There are multiple indicators of a potentially disastrous deal in real estate, such as hidden problems with the property, a seller’s overall attitude and behavior, signs of
WE ALSO GO AS FAR AS
potentially be hiding something.
ORDERING A SURVEY FOR EACH PROPERTY WE ARE SERIOUSLY CONSIDERING. THIS HELPS US TO IDENTIFY ANY PITFALLS THE PROPERTY MAY HAVE OR POTENTIAL OPPORTUNITIES FOR RE-ZONING, WHICH MAY YIELD A HIGHER PROFIT MARGIN.
It is extremely important to search
IF YOU ARE IN A SITUATION
WHERE A SELLER OR SELLER’S REAL ESTATE AGENT SAYS, “I HAVE MULTIPLE OFFERS, SO YOU NEED TO MAKE A DECISION FAST,” POLITELY HANG UP THE PHONE. THERE’S NO NEED TO BE UNDER THE GUN TO MAKE DECISIONS,
“do-it-yourself” work, etc. Learning
for signs of “do-it-yourself” work.
what these indicators are and how to
Quite often—and especially during
detect them will place you one step
troubled economic times—sellers
that amount to tens of thousands of
ahead of your competition.
will attempt to cut renovation costs
dollars or more. Inspections should
by any means necessary, even if it
always be long and detailed, and if
dishonest individuals attempting to
means installing a whole new roof by
possible, you should be accompanied by
unload their problems onto any poor
themselves, or with the help of a few
a professional contractor who can give
soul who happens to catch the bait.
friends and other family members. If
you an approximate renovation cost
Nevertheless, the ones who do engage
a newly completed project seems to
estimate on the spot.
in these practices will go to extreme
lack the appeal of a similar project
lengths to masquerade the financial
you’ve previously seen done by a
expensive, do not be afraid to say no.
trap they have listed for sale.
professional contractor, chances
Likewise, if you are unsure of potential
are the seller either did it himself
renovation costs, but have noticed
new paint might be an attempt to
or hired an extremely low-cost
certain suspicious behavioral patterns
cover up wall deterioration, or water
contractor who probably lacked
on the seller’s part, or patch-up work
damage. The list of possible cover-ups
the skills necessary to complete the
in random and unusual places, it is
is endless, so it is extremely important
project properly. Either way, signs
probably best to explore other prospects.
that you inspect the property with
of “do-it-yourself” work are usually
Knowing when to walk away from a
meticulous detail before making
indicators of major future problems.
deal is absolutely essential to success in
an offer. Practices such as lifting or
If you notice any, it is probably best
real estate investing—if you don’t learn
moving couches, tables, beds, etc.;
to walk away and explore other
this skill, you could be toast. •
Obviously, not all sellers are
For example, random patches of
30 PRIVATE LENDER
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Hidden problems can run up bills
If the potential bills seem too
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Zika and its Impact on Property Valuations
Real Estate While there have been reports of a drop in tourism and some local businesses have temporarily closed, it
by Mark Melikian
Zika’s Impact of South Florida
is simply too early to tell if residential real estate values will be impacted in
ome of the wealthiest people
disaster, property values are likely to be
on the planet will tell you
impacted. What we would like to know
that the best investment you can ever make is in real estate. Many
is how they will be impacted. Recently, the media released news
these Miami neighborhoods. According to a report from Barry Sharpe of the Property Tax Appeal Group, a firm that provides appeals
have learned that investing in
of the first cases of the Zika virus
on property tax assessments in South
real estate financing can be just
turning up in South Florida. Borne by
Florida, “If Zika virus fears continue
as lucrative, but only if you invest in
mosquitoes—an insect that humans
over the long term, it could cause
the right markets. Property valuations
have been trying, mostly in vain, to
businesses to close, which could then
are in a constant state of flux in every
control for over 100 years—the Zika
depress real estate values nearby.”
community in the country. Knowing
virus creates a flu-like illness in humans
when the property values are increasing
that is particularly fearsome because
as yet, no conclusive evidence of a
is one key to making money in the real
it can cause severe birth defects in the
possible epidemic’s impact on values.
unborn children of pregnant women. At
But just because we can’t see the
last count, there were nearly 100 people
smoke yet doesn’t mean there isn’t a
in South Florida infected with the virus.
fire. To determine whether an impact
One of the best ways to predict what property values will do in any market is to keep tabs on the industry’s most
But Sharpe added that there was,
In July, Zika virus fears hit the
will ultimately be felt in markets
recent data. There are a number of
Wynwood neighborhood of Miami
impacted by Zika, we looked for
sources that one should track. We
and Miami Beach in South Florida,
historical examples of environmental
provide a monthly summary report that
specifically. By mid-September, Florida
events that did have an impact on
can help anyone keep up-to-date on
Gov. Rick Scott said that the Wynwood
those numbers. It’s free on our website.
area was Zika-free, but the Centers for
When viewed in the aggregate, this data
Disease Control’s guidance for those
Three Mile Island: Impact of
gives a fairly good picture of the market
who were in the area between June 15
at any given time. But what happens
and Sept. 18 remains largely unchanged,
The Three Mile Island nuclear
when the unexpected occurs?
according to published reports. There is
power plant experienced a partial
not yet a vaccine for the virus.
nuclear meltdown on March 28,
The Uncertain Impact of Unexpected
Because microcephaly, the birth
1979. At the time, the public had no
defect linked to the Zika virus, can be
reference point to tell them what the
so devastating to families, we would
ultimate impact of such a crisis could
visit upon us or our real estate. When
expect the presence of such a threat
be. The news media offered extensive
it happens, whether it be in the form
in a community to impact property
coverage during a time period when
of a hurricane, a devastating drought,
values there. We looked to the data for
news was served up to consumers only
an insect infestation or a man-made
evidence of that impact.
30 minutes each evening. The result
Environmental Events You cannot predict what nature might
32 PRIVATE LENDER
••• was widespread fear and uncertainty. In the days following the accident, over 100,000 people evacuated the
Mammoth Lakes: Fear of
elsewhere. Public anxiety was kept
high in early 1983 by two magnitude
Mammoth Lakes, California, is
5 earthquakes…But after mid-1983,
region, taking their money from banks
a resort town with an elevation of
nothing happened. Tourists, home
as they fled the threat of radiation
about 7,900 feet and is surrounded
buyers and new businesses did not
exposure. All of this was captured
by volcanic mountains rising as
regain confidence in the town until
on television by news crews. Over time, most people returned to their homes, but by
high as 11,000 feet. There are approximately 8,200 year-round
economy has been recovering steadily since then.”
residents, and the
this time the
local economy is
1986, said Mr. Thompson. The
What Do Those Events Teach Us? Prices in Mammoth Lakes declined
early on, which was similar to the
linked to the
Three Mile Island market reaction.
Based on these comparisons, it
appears that residential real estate
Downing observed that immediately after the accident, there was a “noted collapse in the property market around
Area. In 1980, a magnitude 6.1 earthquake hit the area and geologists issued
prices are likely to decline in the impacted markets in South Florida, but we haven’t seen that yet. To further this observation, a recent online search shows no significant
subsequent public warnings
increase in the number of new listings
the plant, but within eight weeks
about possible volcanic activity.
over the past 30 days in the Wynwood
the market appeared to recover.”
Sandra Blakeslee covered the story for
neighborhood or Miami Beach. If
However, others were not so positive
the New York Times. In her article,
the scare was impacting current
in their analysis.
published on Sept. 11, 1990, she wrote:
homebuyers, we would expect to see
“On May 27, 1982, federal geologists
them list their properties in order to
A CORE IQ Applied Economics Research article reported that “…
issued a notice of potential volcanic
one developer indicated that it was
hazard, the lowest alert level in the
flee the risk. That hasn’t happened yet. In conclusion, it is too early to get
virtually impossible to sell property
system then used. The notice was
an accurate indication of any impact
in the immediate area, and only after
issued on a Friday afternoon before
that the Zika virus fear will have on
waiting approximately one and one-
a local weekend festival, said Dr.
these residential real estate markets.
half years after the accident were they
Andrews, and it had an immediate
The reports of some business closings
able to sell a spec-built home at a 30
impact: tourists stayed home. The
and a decline in tourism may portend
local economy collapsed, said Glenn
real estate price declines. History has
Thompson, Mammoth Lakes’ town
shown us that if Zika fears continue
may have been anecdotal, in both
manager. Housing prices fell 40
or the infected areas expand, there
published papers it was noted that the
percent overnight. In the next few
will likely be a residential real estate
local market experienced a downturn
years, dozens of businesses closed,
price decline followed by some price
early on, with at least some measure
new shopping centers stood empty
leveling, or price recovery, over an
of recovery occurring over time.
and townspeople left to seek jobs
extended period of time. •
While this developer’s experience
SEPTEMBER/OCTOBER 2016 33
MANAGE & LEAD
Change is Ahead—But What Kind and How Much? Regardless of who wins the White House in November, considerable change could be on the way to the financial industry. by Jeffrey N. Levin
t’s hardly a revelation to say
to an issue that has the potential to
election results can have a
have a major impact on the growth
profound impact on financial
of the economy—namely, the future
institutions, including private
of federal regulations on the banking
lenders. The leadership of
and private lending community.
Woodrow Wilson in 1913 led to
Depending on who occupies the
the establishment of the Federal
White House next January, we may
Reserve Board, which still operates
be subject to a new environment of
immigration, it is natural to question
as the major organizing principal
increasingly cumbersome federal
whether his positions on the
in the modern age of banking.
regulations, or, conversely, a rollback
regulatory environment are similarly
Some think that President Clinton’s
of some of the more constricting
malleable and might change down
repeal of the Glass-Steagall Act,
regulations in this sector.
which allowed banks to participate
So what exactly are the facts
Although his views on some
in speculative securities markets,
concerning the two major
issues may be subject to populous
was a contributing factor in the
candidates, and how might their
momentum, a careful analysis of
2008 financial crisis from which the
policies affect the banking industry?
his position points to the likelihood
economy is still recovering. Most
Let’s take a look.
that very little would really change
recently, under President Obama, a new era of federal monitoring
TRUMP: How Much Will He Really Disrupt the Status Quo?
and heavy regulation of financial
Most of the media
the Dodd-Frank Act ushered in
for private lenders under a Trump administration, and in fact, some things may get easier. For one thing, Trump has stated
institutions, especially for the “too
portrayal of Donald Trump
his dislike of the Dodd-Frank Act
big to fail” global banks.
shows him to be an unpredictable
and has even hinted that he might
During the 2016 election season,
candidate, eager to up-end the status
dismantle it, a task that Republicans
the media has amplified the fevered
quo. Some have speculated that this
have been attempting unsuccessfully
controversy on topics such as
unpredictability could spell trouble
for a while. Many Republicans
immigration, Second Amendment
for the banking world. After all, if
believe that these regulations are
rights and terrorism. In contrast, not
his views seem changeable when
stifling the economy.
much attention given has been given
it comes to veterans affairs and
34 PRIVATE LENDER
Trump has also declared his
intention to require every federal
in general, Trump has hinted at
boosted deal flow to the private
agency to prepare a ranked list of
changes, stating his intention
lending sector. Under a possible
regulations imposed on American
to move student loans out of
Trump administration, banks may
businesses and to prioritize them
government control and back into
be better equipped to fight for those
from most to least critical. Items
the private sector. This statement
customers, and win with their lower
ranked at the bottom of the list will
can be interpreted to indicate
interest rates. In this scenario,
be first in line for consideration of
support for private lenders in general
a Trump victory in November
repeal. While some may question
over government regulation.
could lead to less favorable market
the practicality of this measure, it
Based on his positions on these
shows that Trump’s vision includes
issues, it seems likely that there will
the deregulation of business. He has
be no great disruption to the banking
made this vision even clearer in his
industry should Trump become
proposal to pause the creation of
president. In fact, an easing of
new regulations and to review all of
regulations and red tape may make it
the regulations presently in place,
easier for banks to compete for those
expressing his intention to “scrap”
clients that are currently deemed
some of them. It seems clear from
“unbankable.” Over the last two
this stance that any changes made
years, regulators have applied more
by Trump to the banking industry
scrutiny to banks of all sizes to ensure
would lean toward loosening the
collateral requirements are met. The
more stringent conditions applied
Concerning lending practices
to the banks have correspondingly
conditions for private lenders, due to the increased competition. CLINTON: Fighting Shadows? Hillary Clinton has been very clear on her stance regarding private lenders, promising to be tough on them. She refers to them as “shadow banks,” pointing to their business practices as a source of economic instability. Many of her statements on this issue show that she has every intention of cracking down on such
SEPTEMBER/OCTOBER 2016 35
MANAGE & LEAD businesses by increasing government
to the average consumer. The goal
into being as part of President Obama’s
monitoring and regulation.
of this legislation is to avoid the
system of financial reform. However,
problem of banks becoming “too big
she did vote in favor of the bank bailout
already have become subject to some
to fail” and necessitating another
in 2008, despite expressing some
cumbersome restrictions. For example,
bailout. While in theory this policy
reservations about it, which seems to
hedge funds and firms are required to
would only affect large corporations,
indicate a desire to intervene to keep
fill out a costly and prohibitive amount
in practice it could place limitations
the banks going, if necessary.
of paperwork every year to ensure
even on smaller institutions, as they
compliance with the law. A “3 percent
too become increasingly limited in
Reserve’s plan to ban mandatory
rule” on the availability of mortgage
their ability to offer affordable loans.
arbitration clauses in bank contracts.
loans was also imposed. As a result,
Clinton has also stated her intention
Under Dodd-Frank, private lenders
Clinton also supports the Federal
This would result in a massive
home loans have become much less
to strengthen the Volcker Rule, which
upswing of litigation that will be costly
affordable to a vast segment of the
some think has already weakened
to financial institutions, and thus to
American population. With increased
banks by hindering competition.
consumers, as the cost is passed along
regulation, it is to be expected that such
Clinton’s plan is to extend the rule
to them through decreased availability
cost-prohibitive and lengthy paperwork
so that it applies to corners of the
of affordable loans.
will expand, as lenders are under an
banking world that have so far been
ever-increasing regulatory burden.
lightly regulated, such as hedge funds
has been criticized for her friendships
and insurance companies.
with big banks and corporations like
While Trump has expressed a desire to dismantle Dodd-Frank, Clinton
While Clinton does not endorse
It’s worth noting that Hillary Clinton
Goldman Sachs. She has even received
wants to strengthen and extend it. In a
reinstating Glass Steagall, as her
payment for speaking engagements
December 2015 New York Times op-ed
Democratic opponent Bernie
on Wall Street. Consequently, some
piece, she stated: “As president, I would
Sanders did, she has expressed a
voters are skeptical that she will really
not only veto any legislation that would
plan to enforce tighter regulations,
enact legislation that runs counter
weaken financial reform, but I would
which could lead to the downsizing
to the interests of such corporations.
also fight for tough new rules, stronger
and breakup of large financial
During her husband’s presidency, he
enforcement and more accountability
institutions that are too complex
deregulated the financial industry,
that go well beyond Dodd-Frank.” And
or risky. Thus it seems clear that
taking away many of the structures put
she has indicated some specific measures
this stance will bring lenders under
in place for the purpose of government
that she would take to accomplish this.
greater scrutiny. She also pledges
monitoring of financial institutions.
to mandate greater transparency in
Candidate Hillary Clinton shares some
financial institutions with more than
what she terms the “shadow banking
of the same advisers.
$50 billion in assets will have to pay
system.” She has even criticized
a graduated “risk fee.” Banks could
Sanders for having a “hands-off”
will stay strong in her support of
also pay a fee if they are identified as
approach to what she deems the
the Dodd-Frank Act, which Trump
“risky” by regulators. These fees will
riskiest activities in our economy.
seems bent on repealing—or at least
For one thing, she proposes that
It seems likely, though, that Clinton
augment the restrictions and capital
Her voting record while in Congress
requirements that have already been
supports this, as she repeatedly blocked
one that is embraced by people on
imposed on banks in the aftermath
Republican attempts to limit the power
both sides of the aisle; the cause of
of the financial crisis, leading to
of the Consumer Financial Protection
tougher restrictions on Wall Street is
further shrinking of loans available
Bureau, a regulatory agency that came
a popular one.
36 PRIVATE LENDER
weakening. Clinton’s position is
••• Based on her history and her
government regulation. Under Clinton’s
Lenders may also need to
platform, it seems very likely
leadership, there will be great incentive
restructure their lending practices to
that Hillary Clinton’s presidency
for banks to simplify, reducing their risk
be less dependent on volatile, risky
would herald an era of tightening
of appearing “too big to fail” and thus
sources in order to avoid penalties.
regulations on the banking industry.
incurring penalties and restrictions.
Her policies could severely restrict
Lenders will need to implement cost-
sector, now is the time to begin
the freedom of private lenders,
cutting measures to buffer the potential
planning for either scenario; the
even more so than has been already
increasing cost of new restrictions. They
likelihood of status quo or perhaps
experienced with President Obama.
should consider reducing their operating
deregulation in a possible Trump
The costs to lenders will eventually
expenses in a manner similar to the New
administration, compared to
be translated into loans that are
Project BAC implemented by Bank of
the potential of challenging new
increasingly unavailable to the
America last year. By streamlining its
regulations in a possible Hillary
average consumer, potentially
workforce, Bank of America was able
Clinton administration. While it’s
shutting some of them out of the
to reduce costs by $8 billion, somewhat
hard to predict, it seems clear that
mitigating the increasing expense
there is great potential for some
related to compliance with the Dodd-
significant changes to our financial
Private lenders will do well to prepare for the possibility of increased
For those in the private lending
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38 PRIVATE LENDER
AT THE HELM
Getting to Know
EDDIE WILSON AEG President is a Man of Diverse Interests and Experiences, Which Have Contributed to His Success in Business and His Personal Life.
rivate Lender asked Eddie Wilson,
media, advertising and consulting
president of The American
some larger Fortune 100 companies
What is the biggest challenge? In any budding industry, the pace of
Association of Private Lenders' (AAPL)
has given me a broad understanding of
growth is important. AAPL’s biggest
parent company, Affinity Enterprise
different business models, in terms of
challenge is to stay humble and grow
Group, to tell us more about the path
efficiency and communication. AEG is
but not outpace the industry.
that brought him where he is today.
really an amalgamation of 60-plus small businesses. Because of my involvement
Is there an event or experience early in
Tell us a little bit about your background
in small business and corporate
your life that determined the course you
and your route to becoming president of
structure, I have a unique perspective on
ultimately chose? A defining moment?
Affinity Enterprise Group.
how best to bring some of our companies
My background was a very diverse one. I have worked in radio and
I think all of us have defining
together—as well as separate some out—
moments. I have a few. Some came in
so that all had the best chance of success.
the form of loss and others in the form
television as well as owned my own
of opportunity. At a young age, my sister
advertising agency. I also have been a
What do you see as the biggest
passed away from a heart defect. At the
real estate investor for quite some time.
opportunity for AAPL and its members?
time it was devastating, but now it fuels
I found success early in life that allowed
This industry has been provided
my intense compassion for others. My
me to be selective in my opportunities.
one of the greatest opportunities
brother was diagnosed with a very rare
Mike Wrenn and Tim Norris, the
for growth during the past 10 years.
disease, and he died at the age of 18.
founders of AEG, were a couple of great
I see this association becoming as
This also was a very devastating time,
guys I looked up to in the industry, and
relevant as the bigger and more
but it stoked a desire to live life to the
I always felt a kinship and a desire to
conventional associations that service
fullest and strain the potential out of
see them succeed. Mike was on a path
the mainstream banking industry.
each day. I have many more impactful
of taking a step back in his role at AEG,
Up to now, there has been little to no
moments, which typically involve family
and I was open to new opportunities. It
regulation, so if we can self-police,
or job opportunities, but the importance
seemed to be the perfect fit for the time.
create integrity and champion ethical
of each one of those moments is what
private lending, then we will also
you choose to do with them.
How has your previous business
serve as a catalyst for massive growth.
experience prepared you for
Regulation growth typically means
Can you name a person who has had a
overseeing all of AEG’s entities,
stunted growth, in any industry. AAPL
tremendous impact on you? What did
can be the dam that holds back the
this person teach you?
The diversity of working in mass
governmental regulatory fervor.
My father is one of the most impactful
SEPTEMBER/OCTOBER 2016 39
AT THE HELM
••• the utmost importance. The example my father left me is what keeps me motivated each day. Likewise, I want my boys to see consistency, hard work and integrity. My family is my source of strength and motivation. A close second is understanding that life is about the journey, not the destination. Every day I find fun in the pursuit of my goals, not the reaching of my goals. You are an avid reader. What are some of the books you would
people in my life. He has an intense
of who I am, I believe that we only get
devotion to his faith. He has a work
what we are willing to give and that
ethic that is unmatched and a desire to
your integrity is everything!
succeed in any situation. He is quiet, giving and supportive. His life has been
What is your management/leadership
a roadmap for success to me. In any
situation, he is the one I call for the
I was introduced to management
greatest advice. He has owned many
early, so I thought a forceful position
small businesses and has been very
would cause others to act. What I found
successful at everything he has touched.
was that learning who people are and
I have watched him as a child, teenager,
engaging that in their greatest desires
young professional and now as a father
and passions are far more effective then
and husband. His consistency has been
engaging them in fear. A 50-plus-year-
a guiding light. I owe him very much!
old man I supervised who was really
recommend to colleagues or others who aspire to do what you do? I do love to read non-fiction books. I am a huge Malcolm Gladwell fan, so “Outliers” or “Tipping Point.” I also find great insight in Patrick Lencioni’s books. My favorite book that he has written is “The Five Dysfunctions of a Team” because of how broad the application is. What characteristics define a great leader? Honesty, integrity and passion.
frustrated with how I operated sat me
What four individuals—living or not—
You are a man of many interests, in
down and was very honest with me. His
would you most want as dinner guests
business and in your personal life.
words hurt for a little while, but after
and conversationalists and why?
Tell us a bit about that and how it
swallowing my pride, I took his advice.
• Jesus—I would have a million
has enriched you and contributed to
And that is what made me successful in
questions here. Single most
your success and development as an
my early years.
influential character in history. • My wife Misty—I would rather have
industry standard bearer. Being tied to the national political scene, mass media and other industries gives me a fresh look at what we are
What keeps your work interesting and
dinner with her than just about
fulfilling for you?
My family keeps it most interesting.
• Michael Jordan—Childhood hero!
doing. Probably the most important of
Yes, I have my hands in many places,
• George Washington—I’m a big
all of my interests is the international
but my family is very important, and
history fan, so I am sure that would
non-profit side of what I do. At the core
the legacy I leave to my three boys is of
be amazing •
40 PRIVATE LENDER
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AAPLCONFERENCE.COM 42 PRIVATE LENDER
CONFERENCE SPECIAL PREVIEW
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MEET YOUR HOSTS
Executive Director, American Association of Private Lenders
Director of Marketing & Member Services, American Association of Private Lenders
What’s your favorite aspect of the Annual Conference? My favorite aspect is always getting to see everyone and spend time with our members. We have the best time at this conference. If you could have lunch with one Caesars Palace headliner, who would it be? Brooks and Dunn What’s your favorite App? Snapchat these days, so I can send silly videos to Chrissey. What’s the nerdiest thing you do in your spare time? Well, I am a big nerd at heart but probably dancing about the house with my little girl, singing at the top of our lungs.
What’s your favorite aspect of the Annual Conference? For me it’s getting to see everyone with whom I only chat with over the phone or email! I love, love, love being able to bring our jokes and ridiculousness into one room full of smiles! If you could have lunch with one Caesars Palace headliner, who would it be? This is a tough one. I’d chow down with Reba because we’ve got the redhead thing going. BUT, who doesn’t love Seinfeld!? What’s your favorite App? Steelers! What’s the nerdiest thing you do in your spare time? I spend way too much time talking to my dog and asking his opinion on things.
If you could have one superpower, what would it be? I would like to have the ability to freeze.
If you could have one superpower, what would it be? I think I want to be able to fly!
Complete this thought: If another attendee recognizes me at the conference because of this feature, I hope he or she: … comes to say “Hi” and introduce himself or herself.
Complete this thought: If another attendee recognizes me at the conference because of this feature, I hope he or she: … will share a joke and show me a picture of their dog.
NOVEMBER 13-15, 2016 | AAPLCONFERENCE.COM 45
AAPLâ€™S 7th ANNUAL CONFERENCE & EXHIBITION November 13 - 15, 2016 Caesars Palace | Las Vegas EXPAND YOUR CAPABILITIES. FIND YOUR INSPIRATION. The AAPL Annual Conference is one of the largest events dedicated to private lending, The Conference provides industry specific education, timely updates, notable sessions, unlimited networking engagements, and so much more for professionals across real estate servicing.
For more information and to register, visit AAPLConference.com.
46 AAPL ANNUAL CONFERENCE PREVIEW
Sunday, November 13 AAPL members who attend the 2016 Annual Conference are eligible to participate in professional designation training: Certified Private Lender Associate (CPLA) and Certified Fund Manager (CFM). Completion of professional designation training indicates the members: • Achieved industry recognition and set themselves apart from their peers.
• Developed a strong foundation and technique for better underwriting and servicing of loans.
• Gained an up-to-date understanding of federal laws and regulatory issues specifically affecting the private lending industry.
• Ensured business and documentation are compliant and adhere to industry best practices.
9:00 am - 5:00 pm
Certified Private Lender Associate Designation Courses (Members only)
Private Lender Associate: The CPLA designation provides a comprehensive overview of the principles of private lending. It also includes detailed information on the current federal laws and regulations surrounding the industry. Upon successful completion of the full day course, AAPL members in good standing will be entitled to use the CPLA designation and logo, demonstrating their commitment to education and their desire to achieve industry excellence. The CPLA requires annual membership and continuing education. Designation availability for $349 9:30 am - 12:30 pm
Certified Fund Manager Designation Courses (Members only) Presented by Kevin Kim and Anthony Geraci
Fund Manager: The CFM designation bridges industry practices, investment theory, and ethical and professional standards to provide investment analysis and portfolio management skills. This intensive fourstage course, designed by industry veterans, will help you answer the question, “Is a mortgage fund my next growth opportunity?” Topics include: Mortgage Pool Fundamentals - Vision and Execution; How to Structure, Capitalize and Administer a Mortgage Pool Fund; Creation and Launching of the Fund; and on-going Fund Administration. The CFM requires annual membership and continuing education. Designation availability for $349 1:00 pm - 5:00 pm
Exhibitor check-in and set-up
6:00 pm - 8:00 pm
VIP Reception (Invitation only)
Monday, November 14 7:30 am - 5:30 pm
Attendee check-in open
8:45 am - 9:00 am
Opening Remarks: Eddie Wilson, Affinity Enterprise Group
9:00 am - 10:00 am
Keynote Address: Dr. Mark Fleming, First American Financial Corporation
10:15 am - 11:15 am
Featured Speaker: Jon Hornik, LaRocca, Hornik, Rosen, Greenberg & Blaha
12:30 pm - 1:30 pm
Lunch (on your own)
4:00 pm - 5:00 pm
Speed Networking with A.J. Poulin, The Mortgage Office
5:30 pm - 7:00 pm
Networking Reception: Sponsored by Appraisal Nation
Tuesday, November 15 12:30 pm - 1:00 pm
For the full conference agenda visit AAPLCONFERENCE.COM/AGENDA
*Agenda is subject to change NOVEMBER 13-15, 2016 | AAPLCONFERENCE.COM 47
FEATURED SPEAKERS What traits define you? I’m an energetic leader who is truly passionate about what I do in my professional and personal life. I’m also loyal, persistent and honest. How do you measure success? How well you bounce back from downfalls.
ROBERT J. BUCHANAN Managing Partner, CCG Capital
What was your first job? I worked doing landscaping for my baseball coach during the summers throughout high school. I then started my own landscaping venture to earn extra money through college. What is your greatest career ambition? My goal is to continue to grow a successful business and build a legacy that I can pass on to my children. What’s at the top of your post-career bucket list? Buying a yacht and traveling the world. What is the best book you have you ever read? “First Break All the Rules” and “Good to Great” What is your greatest career ambition? Build a legacy for young women to realize that they can be successful in a highly concentrated male industry.
How do you measure success? Success is measured when family and employees admire your accomplishments, when I still see myself as a part of team that made us President, Ignite Funding all successful. CEO, Preferred Trust Co.
What traits define you? Sarcasm and laughter. If you can make me laugh, I’m a friend forever. What’s one thing other people would never guess about you? I don’t particularly care about money. Biggest modern breakthrough – electricity, internet or space travel? I would say toilet paper outranks all of these.
NEMA DAGHBANDAN, ESQ. Partner, Geraci Law Firm
48 AAPL ANNUAL CONFERENCE PREVIEW
What’s your favorite way to relax? I love watching car videos on Youtube. What would you do (for a career) if you weren’t doing this? Race car driver.
What would you do (for a career) if you weren’t doing this? I would be doing the same – maybe for a different company, but I absolutely love what I do – training our people, talking with our clients and helping them succeed at their businesses. What is the one thing you cannot resist? A good book.
ANTHONY F. GERACI, ESQ.
What is the best book have you ever read? “Exponential Organizations.” It absolutely blew my mind and provided the impetus for the current vision of our firm.
Managing Shareholder, Geraci Law Firm
What’s the one piece of technology you depend on most? My phone. Can’t live without it.
What traits define you? Honesty, organization and approachability. How do you measure success? Through the achievement of written goals. What was your first job? Paper route.
MIKE HANNA CEO, Investmark Mortgage
What is your greatest career ambition? To start companies and take them to the next level. What is your favorite way to relax? Being anywhere near water.
What’s at the top of your post-career bucket list? To live in Barcelona. What is the one thing you cannot resist? Haagen Daz ice cream bars. What would you do (for a career) if you weren’t doing this? Corporate headhunter
MARC HEENAN Head of Commercial Origination & Asset Management, PeerStreet
What is the best book have you ever read? Fiction: “American Psycho” by Brett Easton-Ellis Non-Fiction: “Unbreakable” by Lou Zamperini What is your greatest career ambition? To help bring more transparency and therefore liquidity to real estate finance.
NOVEMBER 13-15, 2016 | AAPLCONFERENCE.COM 49
FEATURED SPEAKERS What traits define you? Entrepreneurial, loyal, hard working, happy, fun, goofy and intelligent. How do you measure success? Providing a great work environment for employees, a solid return to investors, and a valuable product to customers. What was your first job? Delivering newspapers
JOHN HELMICK Co-Founder & CEO, Gorilla Capital
What is your greatest career ambition? Being CEO of Gorilla Capital What is the one thing other people would never guess about you? I competed in two Olympic Trials (a very long time ago). What traits define you? Your reputation defines your character How do you measure success? How busy you are during your day. What’s the one thing other people would never guess about you? I have a 300 lb bench.
JONATHAN HORNICK Founding Partner, Larocca, Hornik, Rosen, Greenberg & Roca
What is your greatest career ambition? More everything! What’s the one thing you couldn’t live without? My family and friends.
What’s at the top of your post-career bucket list? Lots of travel. Lots of mentoring. Lots of family time. What is the one thing you cannot resist? A good exit strategy on a challenging deal. No, Indian food. What is your greatest career ambition? To become the household name in loan and fund management solutions and have a positive impact on as many lives as possible on our way.
KELLEN JONES Chief Strategic Officer, Cache Private Capital
50 AAPL ANNUAL CONFERENCE PREVIEW
How do you measure success? By the way people talk about your work and character when you’re not in the room.
What traits define you? I am not sure I know how to put myself in a box ... but certainly I will let you know when I grow up. What’s one thing other people would never guess about you? How simple I am and how I would give my heart on a platter for someone who asks.
Biggest modern breakthrough – electricity, internet or space travel? I would have picked sliced bread .. but since it is not an option, I would say electricity ... can you imagine battery powered internet or rocket launcher?
Owner/CEO, Liquid Logics
What’s one thing you couldn’t live without? Peace of mind that I am doing right all the time.
What would you do (for a career) if you weren’t doing this? Fun answer: A travel writer. Realistic answer: Probably a banker. What is the one thing you cannot resist? Facebook. What is the best book have you ever read? “Calvin and Hobbes”
KEVIN S. KIM, ESQ. Senior Associate, Geraci Law Firm
What’s the one piece of technology you depend on most? My computer. What was your first job? My first real job was as a commercial real estate loan officer with Center Bank, today known as Bank of Hope. What traits define you? I am driven, passionate, reliable, and honest. I don’t believe in sugar coating things and I’m willing to admit my mistakes. How do you measure success? I believe success is determined by how much you’re learning – about your business, your customers, your industry, your competitors and yourself. There is no easy recipe for success. That is why you need to ask for feedback and learn how to improve upon what you are doing. That will make you successful.
ERICA LACENTRA Marketing Manager, RCN Capital
What is your greatest career ambition? To grow an unknown company into a nationally or globally recognized brand. What’s one thing other people would never guess about you? I took drum lessons for over 7 years and I could play a lot of different music.
NOVEMBER 13-15, 2016 | AAPLCONFERENCE.COM 51
President, Rehab Financial Group
Senior Managing Partner, A List Partners
Vice President of Sales, The Mortgage Office
Managing Director, RCN Capital
What traits define you? Fair, open and honest with a good sense of humor.
What traits define you? Honesty, Integrity, Morality, Ethical
What’s at the top of your post-career bucket list? Coming up with a postcareer bucket list.
What was your first job? My first job was collecting golf balls at a driving range. – I loved it!
What is the best book you have you ever read? “The Omnivore’s Dilemma”
What would you do (for a career) if you weren’t doing this? If I could choose another career if I wasn’t working at RCN Capital, I would love to be a music producer or music promoter. I really think I would enjoy that and be good at it.
How do you measure success? Being able to sleep at night. What was your first job? Assistant bookkeeper in a cemetery while in high school.
How do you measure success? Through the depth and longevity of personal and professional relationships. What is your greatest career ambition? To meet my investors personal wealth goals.
What is your greatest career ambition? Partner in a sofrware company. Check.
What is your greatest career ambition? Not really sure, don’t really know how I ended up where I am.
What’s the one piece of technology you depend on most? My iPhone.
What’s one thing you couldn’t live without? Sunlight.
What’s one thing other people would never guess about you? I am a certified scuba diver.
What’s your favorite way to relax? Traveling to my timeshare in Cancun or visiting friends in Costa Rica.
What is the one thing you cannot resist? A good deal on a luxury hotel.
52 AAPL ANNUAL CONFERENCE PREVIEW
What's the one thing you couldn't live without? My family.
What would you do (for a career) if you weren’t doing this? Standup comedy. What’s one thing other people would never guess about you? That I ran with the bulls in Pamplona, Spain 3 years in a row.
What is the one thing you cannot resist? Ice cream. What is the best book have you ever read? “Alive.” It’s not for everyone, but the story captivated me. What’s the one piece of technology you depend on most? My iPhone.
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TITLE SPONSOR PROFILE: JOHN WARREN
he American Association
os Private Lenders is pleased to introduce Lima One Capital as the Title take care of him.
Sponsor of this
Business is very similar to both. It all starts with an organization’s core
year’s American Association
Why did you join
values and the quality of people the
organization can attract.
I felt called to
serve the country
What inspired you to be a hard
by founder and
after September 11
money lender? When I got out of the Marine
CEO John Warren, the company’s
and wanted to be an infantry Marine to
mission is to become the nation’s
personally “interact” with the terrorists
Corps in late 2008 after my second
largest and most respected lender
who were responsible.
deployment, I interviewed with many companies. Almost all of them refused
dedicated to real estate investors and homebuilders. Here, Warren shares
Tell us a bit about your military
to hire me because they said I had no
some tidbits about his life, inside
practical skills—a fallacy that many
and outside the company.
I am most proud of my time as the
of our nation’s veterans experience. I
commander of First Platoon, Lima
had flipped a couple of houses prior
Company, 3/8 (hence the company
to serving in the Marine Corps, loved
name “Lima One”). During this
the industry and decided to go the
Carolina—home of the best
time, my COO John Thompson and
entrepreneurial route. With banks
downtown in America.
I conducted combat operations in
being regulated out of lending on
Ramadi, Iraq, against insurgent
investment properties, I saw a need
forces. We served with a group
for a professional lending company
of courageous Marines, went on
geared strictly to investors. I somehow
& Lee University in Lexington,
more than 300 combat missions
got lucky raising capital, came up with
Virginia. (Coach K at Duke, for some
and helped turn the tide in Anbar
common-sense lending standards, and
reason, did not recruit a 5-foot-11
Province in 2006.
Lima One Capital was born.
We all have round-about ways of
We noticed the case studies on your
becoming who we are. How did you
website. Those really give investors
get your company to the point you
a chance to see true stories come to
life. Why do you think it is important
Tell us about your early years. I grew up in Greenville, South
Where did you go to college? I was an undergrad at Washington
shooting guard.) I received my MBA from New York University. Do you have a family or pets? I am married to an amazing, marathon-running wife, and we
I applied a lot of what I learned
to share these? Oftentimes, new investors fail to see
have an 8-month old crawling
about leadership from my
sprinter. There’s also my future do—
experiences in the Marine Corps and
all of the challenges and the expenses
when I am responsible enough to
in fighting a counter-insurgency.
of executing a successful flip or
54 AAPL ANNUAL CONFERENCE PREVIEW
••• managing a rental property. We have
real estate investors with great customer
w/ sweet tea.
tried to provide a variety of successful
service and innovative loan products.
What career would you be pursuing if you hadn’t gone into
examples so that others can learn from our clients. All of our case studies show
OK, now for some fun! What is the
“before and after” photos and a true
next item on your bucket list?
economic breakdown of the entire deal.
I was lucky enough to check one
hard money lending? I’d probably be a contractor. I just can’t escape real estate!
off in October, which was to attend a How do you feel when you help
Green Bay Packers game at Lambeau
What was your childhood dream job
someone succeed with his or her
Field. Next up, Duke versus UNC at
dreams of real estate investing?
Cameron Indoor Stadium.
The two greatest rewards I get are when employees get hired and promoted, and when clients are successful in their deals. I am blessed
firefighter because it seemed like a What is your favorite movie?
small role in them.
very exciting job.
“The Notebook” (just kidding!). My favorite is “Shawshank Redemption.”
What do you do to relax after a week filled with work?
to get to experience both scenarios very often, and I am proud to play a very
As a kid, I always wanted to be a
Who is your favorite super hero? My dad.
I love spending time grilling out with friends and family, going to the lake, or watching college football.
Where do you see Lima One in 10 years? We will continue to grow and serve
What is your favorite food? A #4 at McDonald’s: Double quarter pounder with no onions, supersized
What was your first job? And did you ever imagine you would be where you are today? I was a neighborhood shoe shine boy, earning 50 cents per pair of shoes. I had no clue that I would end up where I have, but I am very thankful. •
Learn more about Lime One Capital by visiting www.limaonecapital.com. Check out all of our conference sponsors at www.aaplconference.com.
NOVEMBER 13-15, 2016 | AAPLCONFERENCE.COM 55
56 AAPL ANNUAL CONFERENCE PREVIEW
Noted economist Mark Fleming, Ph.D is highly sought-after for his expertise in interpreting market data.
NOVEMBER 13-15, 2016 | AAPLCONFERENCE.COM 57
KEYNOTE SPEAKER PROFILE:
he American Association of Private Lenders is honored to welcome noted economist
Mark Fleming as keynote speaker of the 2016 AAPL Conference. Fleming, chief economist for First American Financial Corporation, has more than 20 yearsâ€™ experience in the mortgage and property information field and is highly sought after by major media outlets for his insights into the housing industry and economy at large. At First American, he leads an economics team responsible for analysis, commentary and forecasting trends in the real estate and mortgage markets. Prior to joining First American, he was chief economist at CoreLogic and also was an economist with Fannie Mae. We asked him to share a bit more about his background and philosophy with our members and other readers of Private Lender magazine. What is your typical day like? Not unlike as it is with anyone one else in the finance industry, my typical day includes a lot of email and people management. On a good day, I get to write a research brief or blog post. When I am traveling for a speaking engagement, I get to meet lots of people who give me interesting insights and perspectives that help me improve my understanding of the industry and everyone elseâ€™s typical days. What are some of the challenges of your job? We spend a lot of time working
58 AAPL ANNUAL CONFERENCE PREVIEW
MARK FLEMING, Ph.D with data—cleaning, organizing,
What project did/do you consider
measuring credit risk. I was the
acquiring. This takes a lot of effort
a classic “war story”—what were its
“Office Space” guy in the cube with
before the real fun of analyzing the
challenges and lessons, and what
his stapler. I never thought I would
data can actually happen.
would you do differently now?
be speaking before large groups of
Building the house price index
What has been the most rewarding
when I worked at CoreLogic was
project that you’ve worked on?
one of my first major projects as
In fact, how did you get to this point?
It’s actually one that I am still
a manager. I learned a lot about
Did you set out specifically to attain
working on. We are building
how to better work with a cross-
your current job and expertise?
analytical models that are able
disciplinary team of product
to measure the accuracy and
managers, marketers and developers.
Not at all. When I left Fannie Mae for a small up-and-coming start-up in the mortgage finance industry, the
completeness of a valuation (appraisal, BPO) that will significantly
What was your first job, and at that
marketing officer met me and was
enhance the ability of appraisers to
point did you have any idea that you’d
surprised that I wasn’t the stereotypical
efficiently do their work as well as
be where you are today?
determine the risk associated with a valuation in a loan transaction.
I started as an economist at Fannie Mae, analyzing property data and
professor. He anointed me the chief economist, and my career started. I
NOVEMBER 13-15, 2016 | AAPLCONFERENCE.COM 59
KEYNOTE SPEAKER PROFILE: MARK FLEMING, Ph.D
was, in fact, the only economist in the
What career would you choose if you
company at the time, so I was chief of
weren’t doing what you do now?
my own one-man tribe!
I would teach economics at a college or university. Teaching seems
What were the ways you prepared
such a noble and giving pursuit.
yourself to reach this pinnacle? Simple: Hard work, an open mind
Forecasting is a major part of what
and the belief that the way it’s always
you do. So can you tell us what you see
done is never an excuse for not
ahead—both short-term and long-term—
considering how it could be done.
for the private lending landscape? I expect the demand for private
How would you advise someone just
lending will grow in the years to come,
starting out to plan for his or her future?
which is partly a function of further
Opportunity comes to those who are
economic growth as well as little
prepared. Work hard and be prepared
change in the level of credit being made
to take on a challenge or responsibility
available through the government-
when the opportunity arises.
supported mortgage finance system.
Who are some individuals you admire,
What challenges lie ahead for private
in business or in life? And why?
lenders, and for the real estate
Of course, I am a fan of a few economists—Adam Smith and
investing industry in general? The biggest challenge that we face,
Friedrich Hayek in particular. My
in my opinion, is the polarization of
grandfather was also influential in
the job market driven by automation
my life because of his belief that
and technological change. The gains
education is the path to personal
of growth are not equally distributed.
growth and accomplishment.
This is at the root of what we are seeing in today’s political discourse.
You’ve had quite a varied career. What has been the most enjoyable or fulfilling
Are you optimistic about the future
stop on your career “journey”?
for our economy?
The best stop so far is this
Of course! History has proven that
current one. I am proud to work for
if there is one constant, it is change.
First American and am enjoying
We are very good, if not the best, at
building new tools for the industry
innovating, developing new industries
and analyzing the housing finance
and creating entirely new markets.
market with new methods like
Google, Uber, Facebook, energy
our Real House Price Index and
innovation—they have all changed our
Homeownership Progress Index.
economy in significant ways.
60 AAPL ANNUAL CONFERENCE PREVIEW
NOVEMBER 13-15, 2016 | AAPLCONFERENCE.COM 61
KEYNOTE SPEAKER PROFILE: MARK FLEMING, Ph.D
••• How would you compare the U.S. economic climate with that of other countries? I’ll say this, I wouldn’t want to live anywhere else! I can’t think of a better economy to be a part of. Does it have its issues? Of course. All economies do. But our issues aren’t nearly as significant as those of many other countries. Do you have any views on the fallout from Brexit? Ironically, this has been good for the U.S. economy and especially the housing market. In response to the decision, U.S. Treasury bond demand increased as capital sought the safety of our market. This drove down yields and helped to drop mortgage rates. U.S. homebuyers experienced a windfall increase in affordability as British voters chose to exit instead of remain in the European Union. Yours must be a rather stress-filled job. How do you decompress? Run, bike, then run some more! Exercise is critically important to manage stress and remain healthy while traveling and eating on the go. What is your favorite away-frombusiness endeavor? Luckily for me, all that exercise is also my hobby. I like to compete in road races, and if I can get better at swimming, I’ll probably try a triathalon. •
Don’t miss Mark’s Keynote Address! Monday, November 14 at 9:00 am.
62 AAPL ANNUAL CONFERENCE PREVIEW
NETWORKING FOR LENDERS, INVESTORS & SERVICE PROVIDERS Monday, November 14, 2016 | 4:00 p.m. - 5:00 p.m. Caesars Palace, Promenade Level All Conference Attendees Invited!
With energy and enthusiasm, AJ Poulin, VP of Sales for The Mortgage Office, will host this networking event to help you connect with everyone in the room! Bring your business cards, questions, smile and your elevator pitch. You will meet investors, brokers, lenders, and service providers. This session alone will be worth the trip! 33 Expand Your Network - FAST! 33 New Contacts Every Few Minutes 33 Maximize Your Time
33 Accelerate Your Networking 33 Meet Face-to-Face with Prospective Clients, Partners & Referrals
AAPL Annual Conference | www.AAPLConference.com NOVEMBER 13-15, 2016 | AAPLCONFERENCE.COM 63
SPONSOR PROFILE: PEERSTREET
The Loan Arrangers Innovative Online Lending Marketplace PeerStreet is Moving Forward by Returning to Community Values. by Susan Thomas Springer
ounded in 2013 by CEO Brew Johnson and COO Brett Crosby,
In this articled, the founders share their insight on the industry along
What trends do you see in private lending?
PeerStreet is an online marketplace
with what they’ve accomplished, for
that has funded more than $75
all participants in their platform, in
million in loan volume. PeerStreet
only a few short years. As told to
If you look historically how the
selects originators from across the
contributing writer Susan Thomas
industry has evolved, the first thing
country and then vets their real
Springer, edited for brevity.
is that banks have increasingly
estate loans before making them
focused on qualifying mortgages
available to investors. The private
What factors are most important
at a place that they want to lend in
lender partners can make loans more
when you select private lenders to
real estate, and they like to focus
efficiently thanks to PeerStreet’s
there because they have a secondary
technology platform, including data analytics, a robust underwriting engine and other tools.
BREW JOHNSON When lenders apply to join our
market in Fannie Mae, where they can originate and then sell. Private lenders have stepped in
PeerStreet, a member of the
platform, we run them through
to fill the voids, and on one side
American Association of Private
a long due diligence checklist.
of that marketplace you have the
Lenders, is based in Manhattan
The high-level important thing is
private lenders that we focus on
Beach, California. Earlier this year,
the quality of their track record.
who do bridge loans. The whole
the company was named Think
We go through their culture of
private lending industry generally
Realty Magazine’s “Innovator of
underwriting, get an understanding
doesn’t have a secondary market. If
the Year/Lending” for 2016 in
of how they look at deals and how
you think about it from the private
recognition of the unique approach
they deal with borrowers. It’s a huge
lender perspective, that’s basically
that Johnson, Crosby and their
process to vet the lenders with whom
what we’ve created.
multidisciplinary team have taken to
we operate and who basically provide
build the innovative company.
us with deal flow.
64 PRIVATE LENDER
When secondary markets are created, it can actually unlock a lot
of value and create liquidity in that
funded. We see the trend of lending
back to the community, that’s really
market. Our goal, over time, is to
more locally coming back, but also
where we see the long-term trend of
allow private lenders to continue
they’ll be able to expand to make
technology. It’s almost like a “Back
to compete more effectively with
to the Future” kind of thing, using
banks and to take over more of that business for them. BREW JOHNSON
Also technology—like the technology that we’re trying to
technology to bring up the positives of community lending.
provide to these lenders—is an increasing trend. At the end of
How does PeerStreet increase the
The trend we can see long-term
the day, we think local lenders are
opportunity for private lenders?
is lending becoming more of a local
better lenders. We think basically
market. That’s how it was 40 years
they know their markets better than
ago. Then the banks became mega
anyone and also they’re better for the
corporations and lending became
community because then they can
allows our approved private lenders
very detached from the community.
make loans that make sense for the
to become better lenders. Also, we
community they operate in.
provide the capital that is provided
Brett was talking about when only loans that fit this Fannie Mae box,
To the extent that PeerStreet can
or originated in this way, would be
help that trend of bringing lending
BREW JOHNSON Our whole technology platform
from investors on the platform. So when investors invest in loans on
SEPTEMBER/OCTOBER 2016 65
SPONSOR PROFILE: PEERSTREET
PeerStreet, that money is recycled back to the lender, who then can go make more loans. BRETT CROSBY The borrowers for this asset class are local real estate entrepreneurs who typically operate in a specific community where they’re taking properties that need to be rehabilitated. If you do that in multiple homes in a neighborhood, and then multiple neighborhoods in a community, it can have a very positive impact. How does your business model benefit neighborhoods? BREW JOHNSON Our typical loans are these rehab loans on single-family properties. A local real estate entrepreneur or a
interesting thing of bringing that
nonprofit will buy this undervalued
lending back to the community.
property and fix it up to sell it off. So our lenders are providing loans to those entrepreneurs to do that, and
BRETT CROSBY It’s beneficial to the buyers, the
BREW JOHNSON You can see how a technology platform provides value to the participants in the ecosystem. We’re
it commercially flows through our
people in the neighborhood, the
opening up this new asset class of
PeerStreet platform. Investors are
neighborhood as a whole and then
investors, getting a better asset class
providing the capital to lenders to
also to the local business and local
that they can invest in. By investing in
make those loans, so we really think
jobs. So it really boosts the entire
that asset class, they’re also providing
the liquidity that’s created there has
ecosystem when you do this.
capital. Then these entrepreneurs are
It was a magical experience, going
buying and fixing up these properties.
out there and seeing what these
A lot of times they’re bringing in a
borrowers who is fixing up these
borrowers have done. It was cool
contractor to fix up the bathroom or
neighborhoods, and it’s clear
to see these very entrepreneurial
fix up the kitchen.
that if you have a street where a
guys going out there and making
We visited one of the
By being able to cut out middle-men
couple of homes have been fixed
things happen. Maybe they have just
and overhead of this kind of bloated
up, it’s a benefit to first-time
a couple of guys and a small team,
system, and connect these pieces a lot
homebuyers and other homeowners
but they’re really changing their
more efficiently, it unlocks an enormous
in the neighborhood. It’s a really
communities one house at a time.
amount of value over time, we believe. •
66 PRIVATE LENDER
SPECIAL THANKS TO OUR SPONSORS
BRONZE SPONSORS R
T H E P R I VAT E M O N E Y C O M PA N Y
SEPTEMBER/OCTOBER 2016 67
Symbol of Excellence FOR PRIVATE LENDING
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You will: • Join a viable network of industry experts • Get immediate recognition as an industry professional •H ave a voice in creating the standards for the industry •H ave access to exceptional professional development opportunities • Get added marketing support and opportunities to enhance your business
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