Page 1

PL PRIVATE LENDER The Official Magazine of AAPL September/October 2016

43

‣ Meet Your Hosts ‣ Speaker Lineup ‣ Highlighted Events ‣T  itle Sponsor: John Warren ‣K  eynote Speaker: Mark Fleming, Ph.D Presented in partnership with:

AdaPia d'Errico

‣ Evaluating a Deal ‣ Red or Blue: Change is Ahead ‣ Knowing When to Walk Away ‣ What Awaits EB-5?

LENDER LIMELIGHT:

REAL ESTATE CROWDFUNDING PIONEER PG. 20


COVER YOUR ASSETS! at the American Association of Private Lenders 7th Annual Conference

AAPLANNUAL CONFERENCE 2 PRIVATE LENDER

2016

11 aaplonline.com NOVEMBER 13-15 | CAESARS PALACE | AAPLCONFERENCE.COM


CONTENTS

SEPTEMBER | OCTOBER 2016

14

20

32

Is the Deal Right for You?

Lender Limelight

Unforeseen Events

by Charlie Fitzgerald

with AdaPia d’Errico

by Mark Melikian

16

26

Secrets to Success in Real Estate Investing

What Fate Awaits EB-5? Congress and the SEC Could Soon Enact Reforms

Tech Trailblazer & Innovator

34

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.

18

by Jeffrey N. Levin

30

The New Normal

Deal, or No Deal

by Michael O’Meara and Loren Picard

by Abhi Golhar

The World of Financial Engineering

43

Zika and its Impact on Property Valuations

38

Profile

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

48 Speakers

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


•••

CORNER OFFICE

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 rrakowski@affinitymediaservices.com 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!

LINDA HYDE

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


CONTRIBUTORS

•••

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 mark.melikian@summitvaluations.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 momeara@institutionalmortgage.com 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 lpicard@institutionalmortgage.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.

CAREER OPPORTUNITIES

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

info@civicfs.com.

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,

American Finance.

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

marketing@tmckuwait.com.

Realty Mogul, Shayanfekr said, “Together we are all

www.tn-ia.com

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


WHAT’S CURRENT

•••

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 reply@civicfs.com.

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 marketing@civicfs.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

Lansing, Michigan.

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


BUSINESS STRATEGY/FINANCE

Is the Deal Right for You? by Charlie Fitzgerald

O

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

nails down.

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

investment real

best interests

estate transaction

at heart are not

that works for

working with your

you. That’s the deal

fundamentals in

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. •


The

MOST INTERESTING MAN in

HARD MONEY Meet Leonard Rosen, the CEO of Pitbull Conference as well as several other leading experts in the private lending industry this coming October in Florida.

PITBULL’S 41st NATIONAL

HARD MONEY CONFERENCE Monday October 24, 2016

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www.pitbullconference.com SEPTEMBER/OCTOBER 2016 15


LEGAL

•••

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.

P

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

employment areas.

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


BUSINESS STRATEGY/FINANCE

The New Normal by Michael O’Meara and Loren Picard

W

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

senior/subordinate structure.

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

$300K Junior

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

Senior Class

our enthusiasm for the opportunity awaiting the market. Inasmuch as we support the current crop of online

Collateral

AA A BBB BB B Unrated

Mezanine Classes

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

First-Loss Piece

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


LENDER LIMELIGHT

20 PRIVATE LENDER

•••


LENDER LIMELIGHT

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

You’ve really

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!

the industry?

ADAPIA D’ERRICO

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.

Going from

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

fulfilling?

listening to podcasts, reading blogs,

borrowers or investors, but also by

AD: The experience of starting my

participating on forums or interacting

lenders themselves.

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

to mature?

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

keep current?

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

teach you?

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

lending sphere?

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

personal success.

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


LENDER LIMELIGHT

•••

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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BUSINESS STRATEGY/FINANCE

The Value of ‘Other’ Real Estate + IRA + LLC = Opportunity by Jean Meyer

I

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

conditions.” https://www.sec.gov/

properties and “close the deal” on

investor/pubs/assetallocation.htm

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

appreciation.

in the unlikely event of a government

be paid as the LLC’s manager, and

agency inquiry.

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

when triggered.

arises, but investors should check

it in the state where the LLC will

with an attorney to determine

operate.

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

multi-faceted?

account and do not increase as the

• Many investors prefer personalized, “real people” access via the telephone

directed IRAs,

featuring minimal hold times

like all IRAs,

and also want interactions with

require the

well-trained staff.

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

acknowledgement their

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

reputable entity?

to provide investor flexibility?

ability to expand the investor pool. •

28 PRIVATE LENDER


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SEPTEMBER/OCTOBER 2016 29


INVESTOR PERSPECTIVE

•••

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

I

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

QUICK TIP:

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

QUICK TIP:

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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FINANCE/VALUATION

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

S

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.

estate business.

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

property values.

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

the Meltdown

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

Volcanic Eruption

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

damage was

heavily reliant

done.

1986, said Mr. Thompson. The

What Do Those Events Teach Us? Prices in Mammoth Lakes declined

on tourism

early on, which was similar to the

linked to the

Three Mile Island market reaction.

study by

Mammoth

Based on these comparisons, it

Gamble and

Mountain Ski

appears that residential real estate

A 1982

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

percent discount.”

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

I

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.

the road.

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

regulatory environment.

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

housing market.

mitigating the increasing expense

there is great potential for some

related to compliance with the Dodd-

significant changes to our financial

Frank legislation.

institutions. •

Private lenders will do well to prepare for the possibility of increased

For those in the private lending

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SEPTEMBER/OCTOBER 2016 37


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.

P

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

particularly AAPL?

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

philosophy?

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?

anyone else.

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


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MEET YOUR HOSTS

•••

LINDA HYDE

CHRISSEY BREAULT

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


AAPL’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


HIGHLIGHTED EVENTS

•••

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

Conference Wrap-Up

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.

CARRIE COOK

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.

SAM KADDAH

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


FEATURED SPEAKERS

•••

SUSAN NAFTULIN

DAVID OWEN

AJ POULIN

JEFFREY TESCH

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

T

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

of Private

the military?

organization can attract.

Lenders Annual

I felt called to

Conference. Led

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

experience.

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

are today?

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

and why?

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


‘Knows’ for

Numbers

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:

T

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 years’ 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 else’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

finance professionals!

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?

tweed-jacket-wearing, pipe-smoking

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


SPEED

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

F

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

BRETT CROSBY

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

join PeerStreet?

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

more lending.

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

long-term benefit.

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

•••

TITLE SPONSOR

PLATINUM SPONSORS

SILVER 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


DISCOVER THE

Symbol of Excellence FOR PRIVATE LENDING

Members of the American Association of Private Lenders are the new trend-setters in the private lending industry. From their voluntary adherence to a Code of Ethics to their knowledge of the private lending process, they are the gold standard for the profession. Activate your membership with the American Association of Private Lenders to give your business the professional advantage and career boost it needs.

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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68 PRIVATE LENDER

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Sept/Oct. 2016

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